Hello, just wondering if for a UL product the NUR (in a S2 framework) can be seen as the present value of future profits of the company. thank you
Hello There are some similarities between the calculations, but they are not quite the same. The non-unit reserve is the present value of the future expenses plus claims (in excess of the unit fund) less charges. If charges exceed expenses and claims then the reserve might be say -20. A very simple measure of profit could be the present value of the future charges less expenses less claims (in excess of the unit fund) less charges. If charges exceed expenses and claims then this measure of profit might be say +20. So if we use the same assumptions (eg best estimate assumptions for Solvency II), the only difference is the sign. However, a better measure of profit would allow for the cost of holding reserves (and perhaps solvency capital too), eg the present value of the future profits in an embedded value calculation might be the present value of the charges less expenses less excess claims plus investment return on non-unit reserves less the increase in reserves. In this case the future profit may be zero as the extra cashflows of 20 are required to build up the reserves from -20 to zero (if again all the calculations use the same assumptions). So I would say that part of the two calculations are the same (which can be handy in terms of modelling), but profits and NURs are not equal. Best wishes Mark
