I there is a negative non-unit reserve then this means that the life company can capitalise future profits. The core-reading says "The reserve represents a loan from other contracts which have positive non-unit reserves. The loan will be repaid by the emerging future profits from the policy for which the negative non-unit reserve is held". I can't understand how a negative non-unit reserve can be viewed as a loan...
I think what they are saying is that for negative unit reserves to be allowed, there have to be sufficient positive reserves elsewhere from which to offset the negative non-unit reserve. So a positive non-unit reserve is a liability. A negative non-unit reserve is essentially an asset. But credit can only be taken for that asset, if the money for it can be deducted (loaned) from the positive non-unit liability. If that was not the case, additional capital would be required to set up that asset. But if there are positive non-unit reserves, this amount for the asset is essentially "loaned" from the positive non-unit reserves.
The positive reserves essentially loan the policies with the negative reserves. So it is an an asset to the policy with positive reserve. Since there are restrictions on the assets a "policy" can invest in, how much of it can it invest in the negative reserve policies?
