Can anyone tell me the difference between gross premium reserve and net premium reserve? it's been some time since CT5....
The gross premium reserve (at a particular policy duration t) is: EPV(Future benefit payments) + EPV(Future expense payments) - EPV(Future gross premium payments) where the gross premium is the actual premium payable by the policyholder. This is the expression given in Chapter 21 Section 2 of the Notes for calculating the reserve for policies. The net premium reserve (at a particular policy duration t) is: EPV(Future benefit payments) - EPV(Future net premium payments) where the future net premium pa is a theoretical net premium. This is found by solving the equation of value for the net premium using the reserve basis. It takes no account of the size of the actual premium payable or of future expenses. For the products covered by Subject ST1, a gross premium reserve is much more commonly used, because you can usually explicitly value each item of cashflow and there no need to mess around with implicit assumptions for bonuses (as you might do for with-profit business). Hence, a net premium reserve is only briefly mentioned our notes, and in fact not at all in the Core Reading, so it’s not a big deal for us All the best, Steve
