Would it be possible for someone to assist with an example on how we calculate reserves recursively for a simple contract. What I am trying to see is how profits would be zero if we our reserving basis is exactly the same as the basis which we are using to project our cashflows. An excel spreadsheet would be great if possible.
I assume you mean if our reserving basis is the same as the premium basis? If the 2 bases are the same then there is no profit priced into the contract. The premium charged will be exactly enough to cover the cost of benefits and expenses at the premium basis rate of return. Is there some part of this that doesn't make sense to you - or is it the recursive relationship that's confusing?
Yes, pricing basis equal to reserving basis. The concept makes sense to me but aren't able to replicate this idea in excel. When I try to set up a simple CF model in excel I am not getting a profit of zero as should be and I am not sure what I am doing wrong. Furthermore I want to be able to show (in excel) that the reserves, calculated using a recursive method is the same as a formula method (pv outgo - pv income)
Yeah, so that was a stupid question.. Of course it's for a conventional without profits contract. If I get some time I'll see if I can put something together.
