actuarial reserves

 

  • The NLP reserve at time t is the expected value of the loss random variable at time t given Modified reserves Modified reserves are based on premiums which are not level by
    duration.

  • Then, for a death benefit of one dollar and premium , the loss random variable, , can be written in actuarial notation as a function of From this we can see that the present
    value of the loss to the insurance company now if the person dies in t years, is equal to the present value of the death benefit minus the present value of the premiums.

  • This method usually decreases reserves in the first year sufficiently to allow payment of first year expenses for low-premium plans, but not high-premium plans such as limited-pay
    whole life.

  • In actuarial notation, a benefit reserve is denoted as V. Our objective is to find the value of the net level premium reserve at time t. First we define the loss random variable
    at time zero for this policy.

  • For K(x) > t, the loss random variable at time t can be defined as: Net level premium reserves Net level premium reserves, also called benefit reserves, only involve two cash
    flows and are used for some US GAAP reporting purposes.

  • The amount of prospective reserves at a point in time is derived by subtracting the actuarial present value of future valuation premiums from the actuarial present value of
    the future insurance benefits.

  • The net level premium reserve is found by taking the expected value of the loss random variable defined above.

  • Almost all modified reserves are intended to accumulate lower reserves in early policy years than they would under the net level premium method.

  • In the above example, if there were no expected future claims after year 3, our computation would give Actuarial Reserves of $568,320.38.

  • [1] Full preliminary term method[edit] A full preliminary term reserve is calculated by treating the first year of insurance as a one-year term insurance.

  • It is generally equal to the actuarial present value of the future cash flows of a contingent event.

 

Works Cited

[‘Easton, Albert; Harris, Timothy; Abkemeier, Noel (2014). Actuarial Aspects of Individual Life insurance and Annuity Contracts (3rd ed.). ACTEX. pp. 24–25.
2. ^ Black, Kenneth, Jr.; Skipper, Harold D., Jr. (1994). Life Insurance. pp. 567–568. Photo
credit: https://www.flickr.com/photos/ralphandjenny/14154164774/’]