Hi Not sure if this is the right forum for this, but can anyone confirm if prospective reserves are always negative in the early years? I'm trying to calculate reserves using PV(future benefits) + PV(future expenses) - PV(future premiums) and it is not negative in the early years. Thanks.
From a CT5 point of view, you rarely have to deal with negative reserves. The formula you give for the prospective reserve would come out with a negative value if the EPV of future premiums was more than enough to cover the future benefits and expenses, but would be positive otherwise. It depends on the balance between the terms. I can recall this being examined directly in Subject 104, September 2000, Q13 and CT5, September 2006, Q12. Both of these feature a decreasing sum assured, with level premium payments. (In practice, you may get negative reserves occurring more frequently, but that's much more of a ST2 issue, I imagine!)
