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Solvency 2 practice question 11.7

Discussion in 'SA2' started by phoenix2019, Apr 11, 2019.

  1. phoenix2019

    phoenix2019 Member

    Premium frequency

    The non-unit component is more likely to be negative for regular premium policies, since charges
    are more likely to be taken up-front for a single premium policy (eg as a % of the premium).

    Is single premium policy more likely to have negative non unit reserve or regular premium policy?? Can anyone explain with good reason ?

    From the solution of question 11.7 of chapter 11, it appears regular premium is more likely to have negative on unit reserves. But why?
     
    phoenix2019, Apr 11, 2019
    #1
  2. Em Francis

    Em Francis ActEd Tutor Staff Member

    Do you mean the non-unit reserve?

    This is because, under RP, there are future premiums (and therefore charges) which should outweigh future expenses and future benefit costs. Under SP, there are no future charges arising from the premiums (eg unallocated premium). These charges would be taken at the start for SP and so the profit loading would be taken at the start with likely positive non-unit reserves.

    Help?
     
    Em Francis, Apr 12, 2019
    #2

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