B
Benjamin
Member
Conceptual question on negative reserves - I get that on paper, if you take credit for future surpluses then your time-zero strain is lower but unclear on how this plays out on a cashflow basis as ultimately, you still need to pay for your inception expenses and initial commissions to create the policy.
Or put a different way, conceptually the idea that you may be able to reduce your SCR by the value of future surpluses makes sense but as it's a future cashflow, it doesn't put cash in your pocket now, so I don't understand how it can be viewed as helping to "offset the initial expenses and commissions then incurred" (Online Classroom, Reserving Methods, 16:30).
Could you please clarify?
Or put a different way, conceptually the idea that you may be able to reduce your SCR by the value of future surpluses makes sense but as it's a future cashflow, it doesn't put cash in your pocket now, so I don't understand how it can be viewed as helping to "offset the initial expenses and commissions then incurred" (Online Classroom, Reserving Methods, 16:30).
Could you please clarify?