Can someone please explain me the difference between pricing and reserving basis in simple terms? I mean how are the two terms interrelated as well as differ from each other? An example along would be helpful. Thank You
The pricing basis contains the assumptions you use when you decide what price to charge to your customers - what you think might happen (with investment return, mortality, withdrawals etc) before you write the policy. The reserving basis is the set of assumptions you use when calculating a reserve for a policy - the amount you need to set aside to pay future claims, (net of future receipts). They may or may not be the same depending on the level of optimism/realism/prudence you want in each activity. This will depend on things like regulation / competition / risk and uncertainty etc. Also your assumptions for reserving might have changed from when you priced (possibly many years ago).
