Chap 21 - SV

Discussion in 'SP2' started by dimitris13, Feb 6, 2019.

1. dimitris13Very Active Member

Hi,

the book says that the profit retained is specified as
(EAS-SV')+(SV'-SV")

and also says:
if SV assumptions exactly represent future experience then the total profit retaines will be the same as if the contract had not been surrendered.
how this is translated by the the equation ?

Thanks
D

2. Lynn BirchallActEd TutorStaff Member

Hi

We know that the profit on surrender is given by (EAS - SV''), ie the earned asset share minus the SV actually paid.

The expression (EAS-SV')+(SV'-SV") is breaking this profit down into two components, the first being the profit 'earned' by the point at which the policy is surrendered. The second is an estimate of the value of future profits that would have been earned had the policy remained in force.

If SV assumptions exactly represent the actual future experience then this estimate will prove 'correct' and the total profit retained will be the same as if the contract had not been surrendered.

This is quite tricky, subtle stuff I think. Hope this helps clarify a little!
Lynn