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sep 2011 Q4-Embedded value

I

Ivanhoe

Member
The unit reserves for time 2.5 have been arrived at by dividing by 75%. Can some on please let me know the reason? I understand that only 50% policies remain at beginning of time 2.5 and hence the multiplication by 50%


Rgds,
 
The unit reserves for time 2.5 have been arrived at by dividing by 75%. Can some on please let me know the reason? I understand that only 50% policies remain at beginning of time 2.5 and hence the multiplication by 50%.
Click to expand...

In the second year, maturities are 25% of policies in force at outset. However only 75% of policies were in force at the start of the year. So one-third of the policies in force at the start of the year mature, ie 25/75.

Best wishes

Mark
 
Mark Willder said:
In the second year, maturities are 25% of policies in force at outset. However only 75% of policies were in force at the start of the year. So one-third of the policies in force at the start of the year mature, ie 25/75.

Best wishes

Mark
Click to expand...

I don't get this please. Why was this not done in the second year as well?:(
 
Hello

If you're looking at the table of projected charges and expenses in the Examiners' Report, then:

Time t=0.5
The unit reserve is determined for 100% of the policies (There is no multiplication by 75% to allow for the 25% who mature at t=0.5.) So, the unit reserves at each t are being determined "before" the maturities at that time.

Time t=1.5
We know that 25% matured at t=0.5. So, we multiply the unit reserves by 0.75 to get the 75% who are still in force at t=1.5 (before any maturities at that point).

Time t=2.5
We know that 25% matured at t=0.5 & a further 25% of the original number matured at t=1.5. So, we want unit reserves in respect of 50% of the original population (before any maturities at t=2.5). Given that our unit reserves are currently based on 75% of the original population, we need to divide by 75% and then multiply by 50%.

Hope this helps
Lynn
 
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