MTHEL131 Chapter Notes -Accounting, Reinsurance, Life Table
12 Mar 2014
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Most reserves reflect an insurer"s obligation to its customers, but some relate to investments. Policy reserves are liabilities that represent the amount that will be needed to pay future policy benefits. Cash surrender values are related to policy reserves (represent policy owners" demand claims against the insurer"s assets. Excess funds not used immediately to pay policy claims must be recognized by the insurer, and preserved for the benefit of all the policy owners until needed at some future date. Formula statutory policy reserve: amount (with future net premiums and interest) sufficient to pay future claims. Ignore insurer expenses and lapse rates: based solely on state-sanctioned mortality and interest assumptions. Reserve calculations (valuations): use mortality table and interest rate, calculate net premium, selection of policy duration for which the reserve is needed, prospective or retrospective method. Minimum reserve standards establish definite methods of valuing policy liabilities. Policy reserve is a liability to the insurance company.
