I m kinda confused regarding the calculation of net premium under with-profit policies. On page 24 in the 2nd paragraph, it talks about bonus loading (i have attached page 24 with the thread ) and on the very next page (page 25) it explains how bonus loading is used for calculating premiums but on page 28 under the heading "Rationale of with-profit policies" it states that 'net premium is valued ignoring all bonuses' now my question is: 1.) why have we considered bonus in calculating premiums if we're not supposed to consider bonuses while calculating premiums? 2.) Is the premium calculated on page 25 net premium? 3.) In question 6.13 why haven't we considered the terminal bonus for calculating net reserve? 4.) For terminal bonus calculation do we consider the reversionary bonus policyholder receives during the term of the policy? Thank You.
(1) On page 24 they are talking about the actual premium that the policyholder is asked to pay, that is the gross premiums. These are shown numerically when we calculate gross premiums for with-profits in Chapter 7. (2) No it is not, it is talking about the gross premium. (3) The rules for calculating net premium reserves for with-profits policies are: - calculate the net premium ignoring all bonuses and expenses - calculate the reserve prospectively, including the past bonuses in the EPV of the benefit payments, no future bonuses of any sort, and deducting the EPV of the net premiums just calculated. So no future bonuses of any sort are included in the net premium reserve, and as terminal bonuses are a future bonus, then they never appear in the net premium reserve. (4) The terminal bonus is the amount that the company will pay on maturity that makes the total payout to be approximately equal to the total money that the company has accumulated from the policy by that date, from the past premiums + profits - losses. The total payout is equal to {sum assured} + {all reversionary bonuses added} + {terminal bonus}. So, in short, yes!
