IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Gross premiums and reserves
For a whole life assurance issued to a life aged x, the net premium reserve at the end of year t, calculated prospectively on the same basis used to set the net premium, equals which of the following?
The prospective net premium reserve is the present value of future benefits less the present value of future net premiums, using the same basis as the premium. Reversing the sign would give a negative reserve for a normal whole life policy.
- AThe present value of future benefits minus the present value of future net premiumsCorrect
- BThe present value of future net premiums minus the present value of future benefits
- CThe accumulated value of past premiums minus the accumulated value of past benefits, ignoring survivorship
- DThe present value of future benefits plus the present value of future expenses
- The present value of future benefits only
Explanation
A net premium reserve is the expected present value of future benefits less the expected present value of future net premiums, both on the premium basis. Option B reverses the sign and would give a negative reserve for a typical whole life policy.
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