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release in reserve

U

uktous

Member
hi,

I hear a item of "release in reserve".
However, I have no idea about it.
After I read those 2 chapters about reserve in ST2, I complete not sure how the "release in reserve" can apply to those chapter.
Could you please suggest what is a release in reserve?
:D
 
Companies reserve on a prudent basis. Over the course of a year, the actual experience is expected to be better than the experience anticipated in the reserving basis. As a result, the reserve at the next valuation is expected to be higher than it needs to be.
For instance, if a company reserves using an expected investment return of 3%, but actually earns 8%, then there will be a 5% excess return. This will come through as a release of reserves.
The same principle will also apply to expense, mortality and the other elements of the reserving basis.
 
Rosencruz said:
Companies reserve on a prudent basis. Over the course of a year, the actual experience is expected to be better than the experience anticipated in the reserving basis. As a result, the reserve at the next valuation is expected to be higher than it needs to be.
For instance, if a company reserves using an expected investment return of 3%, but actually earns 8%, then there will be a 5% excess return. This will come through as a release of reserves.
The same principle will also apply to expense, mortality and the other elements of the reserving basis.
Click to expand...

hi, Rosencruz

will the release in reserve reduced by the cost of increase in reserve?

can we use the release in reserve to fund the increase in reserve in each year?

I think we can
 
I haven't got around to re-reading that chapter yet, but to the best of my memory...
Reserves will increase as extra premiums get paid, and the final benefit gets closer (unwind of discount). Netted off against this will be the difference between experience and reserving assumptions over the year. This should be positive over the year (if we are writing profitable business).
So for a single policy, the reserve will increase over the year, but for a book of inforce-policies the reserve is likely to reduce. This is because when a benefit gets paid we expect that the benefit will be less than the reserve for the benefit, so there is a release of reserves
 
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