Hi, I am struggling to the difference between prospective surrender values on the premium basis and realistic best estimate basis. Can you please help me visualise how the 2 values would grow overtime relative to each other? With a prospective calculation it would be the EPV(future outgo) less EPV (income) so for a premium basis surrender value to be greater than the best estimate basis does that be the premium basis is more prudent? In the formula, where is the margin for profit implied? Thanks in advance
Hi Y Chen To help you visualise how these two values change over time we have graphed their development. Have a look at Chapter 21 Section 5.2. Yes for a prospective calculation it would be the EPV(future outgo) less EPV (income). And yes, that means the premium basis is more prudent than the best estimate basis. The Core Reading explains how the margins are contained in the premium basis as follows: "Suppose in this example, that the allowance for profit is contained solely in margins in the assumptions used to calculate the premium." Best wishes Mark
