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Chapter 11

K

kimiko

Very Active Member
In the Practice Question 11.5 solution under "Valuation strain (capital strain) risk", it states this: "The guaranteed charges may mean that non-unit reserves have to be held at some stage during the policy, further reducing capital efficiency.", is it not true that these non-unit reserves will be held anyways and why did they specify at some stage? Can you kindly explain this sentence?
 
kimiko said:
In the Practice Question 11.5 solution under "Valuation strain (capital strain) risk", it states this: "The guaranteed charges may mean that non-unit reserves have to be held at some stage during the policy, further reducing capital efficiency.", is it not true that these non-unit reserves will be held anyways and why did they specify at some stage? Can you kindly explain this sentence?
Click to expand...
Hi Kimiko
A positive non-unit reserve is only required when the expected present value of the future expenses and other costs exceed the charges.
Best wishes
Mark
 
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