Under the revalorisation method, the profit, or surplus, to be distributed to a particular contract is expressed as a percentage of that contract’s supervisory reserve. Does this implicitly mean that the supervisory reserve requirements of that particular jurisdiction has to have some particular properties in order for the method to actually achieve the goal of sharing the "investment" profit of the contract?
Let's say we have for example a contract that has 2 years term, pay 1 if the policyholder dies, no expense, no surrender... Suppose actual experience of the company in year 1 is 0.5 premium, 0.5*0.07 = 0.035 investment income, 0.3 claim, in year 2 is 0.7*0.5 = 0.35 premium, 0.35*0.05 = 0.0175 investment income, 0.1 claim. Suppose at the start of year 1, the reserve requirement is 0.6 and at the end of year 1, the reserve requirement is 0.42. So immediately from the pure numbers alone, it is not very clear what is the "investment profit" of the fund is supposed to be here. For "actual investment return", I imagine it is the 0.07 but what exactly is supposed to be the "expected investment return"? In the first place, there is no reason why a reserve requirement has a "expected investment return" concept to begin with, for example it might well be just SA multiplied by a set probability of death, or simply a requirement to hold exactly the annual premium. Also, apparently the reserve requirement must be such that the increasing premium and SA by x% leads to exactly an x% increase in reserve --> this might not be necessarily the case. For example, the reserve calculation can be to simply hold the Asset Share, or E[ max((Asset Share + Premium) * return, SA) ].
Also why is it that "insurance profit is defined as the surplus arising on actual experience being better than expected in the valuation basis"? Again, the reserve requirement can be just to hold the annual premium in which case there is no "expected" concept to begin with. Even if there is an "expected", it can be totally arbitrary.
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