Hi, please kindly help me. I am struggling to understand why the sum at risk is the sum assured minus the reserve (for a context it is the solution to the 1st question in section 3.2 The risks of Chapter 1 Life insurance product 1). Isn't reserve the insurer's money and then shouldn't the sum at risk be the sum assured minus the policy's asset share (if it is positive)? Thank you for your help.
Hi VTC There are many potential measures for profit and loss. We can consider reserves or asset shares as you suggest. We could also consider embedded values for example. Which measure is most appropriate will depend on the purpose of the calculation. The sum at risk is defined to be the sum assured less the reserve. It indicates the amount of money that the insurer would need to find (over and above the reserve) in order to pay the claim. This is a fundamental consideration in terms of the insurer's solvency. I agree that the sum assured less the asset share is also an interesting value. If the sum assured is bigger than the asset share, then it indicates that a death would mean that the policy was loss making. Best wishes Mark
