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Reserve Pattern

Posted: 05 May 2018, 16:14
by ShikhaAgarwal
Hello everyone,

I was revising ct5 today and a question struck my mind. I would appreciate if aby of you could answer.

I was wondering what is the pattern of reserves of various assurance policies and annuites?
Like if we plot reserve on y axis and time on x, what shape it will take?

I will be really glad if any of you could draw it and send with appropriate reason.

Thankyou.
Shikha Agarwal.

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Re: Reserve Pattern

Posted: 05 May 2018, 21:54
by ShikhaAgarwal
No one knows?

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Re: Reserve Pattern

Posted: 10 May 2018, 19:01
by Abhinandan7
Reserving pattern – I am giving a very naïve view being not an expert. It’ll be better if someone involved in reserving, answers this.

As we know reserving means keeping fund aside to meet the future liabilities, so we need to concentrate on exactly what our liabilities are and could be in future. Thus it more importantly depends on factors affecting our liabilities other than time.

At the commencement of any policy our liabilities are much bigger than the premiums to meet them. There are regulatory requirements to keep higher reserves and solvency capital initially. After that some of the reserves are released according to the behaviour of the policy.

As time passes, different policy types, with different financial structure, behaves differently. So it may be difficult to draw a single reserving pattern against time. For instances -

For term assurance, initially life is in good health requiring less reserves but as the life ages mortality effect is greater and hence may be greater reserve is required. For decreasing term assurance reserving against time might be a grey area.
For the endowment, even greater reserve might be required in light of maturity payments.
For annuities, may be less reserving is required as life ages (if no death benefit).
For general insurance, there are different types of reserves that are calculated (about six – like incurred but not reported, reported but not settled etc.). Again it depends on other factors than time. (You are very much aware of this by studying runoff triangle in CT6).

Finally, in my opinion, Reserving is affected by preponderance of other factors affecting liabilities than merely time. Of course we could draw the pattern we if know what reserving is required over time but that also is uncertain as factors might change.

Thank you for reading
Swargesh kant Tripathi

Re: Reserve Pattern

Posted: 10 May 2018, 20:16
by ShikhaAgarwal
Great Swagesh.
Thanx.
I want to ask what is decreasing term assurance?

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Re: Reserve Pattern

Posted: 10 May 2018, 20:29
by Abhinandan7
Decreasing term assurance means the policyholder's benefit is decreasing as the term is ending and after his/her death their dependant recieves regular income till the rest of the term.
 

Re: Reserve Pattern

Posted: 10 May 2018, 20:38
by ShikhaAgarwal
Abhinandan7 wrote:Decreasing term assurance means the policyholder's benefit is decreasing as the term is ending and after his/her death their dependant recieves regular income till the rest of the term.
 
I thought assurances are for single lump-sum payment. So, why regular income?

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Re: Reserve Pattern

Posted: 10 May 2018, 21:47
by Abhinandan7
Term assurance can be both level or decreasing. In level, single lump sum is paid should the death happen within the term. For decreasing what I said earlier.
Variations are always possible in any financial structure. You can check the products of any company (LICI etc.) and your thought might differ.

You'll get to know more about all these in your actuarial journey latter.
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Re: Reserve Pattern

Posted: 11 May 2018, 12:28
by ShikhaAgarwal
Abhinandan7 wrote:Term assurance can be both level or decreasing. In level, single lump sum is paid should the death happen within the term. For decreasing what I said earlier.
Variations are always possible in any financial structure. You can check the products of any company (LICI etc.) and your thought might differ.

You'll get to know more about all these in your actuarial journey latter.
​​​​​​
What i understood from increasing decreasing term assurance in CT5 is that the benefit amount increases or decrease. Not the no. Of payment. If that happens than it will be similar to annuity. Right?

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Re: Reserve Pattern

Posted: 11 May 2018, 12:28
by ShikhaAgarwal
Not similar, but a part of annuity.

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Re: Reserve Pattern

Posted: 29 May 2018, 11:47
by yatinchawla
Abhinandan7 wrote:Term assurance can be both level or decreasing. In level, single lump sum is paid should the death happen within the term. For decreasing what I said earlier.
Variations are always possible in any financial structure. You can check the products of any company (LICI etc.) and your thought might differ.

You'll get to know more about all these in your actuarial journey latter.
​​​​​​
Assurance products always guarantees a single lump sum payment on the death of the policyholder.
The products that you are talking about are different variation of annuities and not assurance.

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