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new business strain

Q

qinfen

Member
Hi Tutor,
In chapter 18, question 18.3, the solution given says "against a realistic measure of assets and liabilities, new business strain does not exist." What does this mean?

Normally, NB strain refers to?

Thanks for your help!
 
If you calculate reserves on the same basis as the premium, then the reserve grows naturally with incoming premium.

If you calculate reserves on a more conservative basis - say, with higher mortality - then on day one you will calculate a reserve that is higher than your premium income to date, so you need to finance that reserve from capital. This is new business strain.
 
Calum said:
If you calculate reserves on the same basis as the premium, then the reserve grows naturally with incoming premium.

If you calculate reserves on a more conservative basis - say, with higher mortality - then on day one you will calculate a reserve that is higher than your premium income (*) to date, so you need to finance that reserve from capital. This is new business strain.
Click to expand...

(*) Good answer Calum. We just need to add in "less expenses" here. (This then ties in with the Glossary definition of NBS)
 
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