Bonus Reserve Valuations

Abstract

A bonus reserve valuation may be briefly described as an attempt to approximate to reality in estimating the proper reserves to be held in respect of a life office's participating policies. The usual methods employed by life offices at the present time depart widely from reality in nearly every respect. The rate of interest used is considerably below what is being realised on the invested funds at the moment and what may be reasonably expected to be realised in the future. The mortality table used represents the experience on an average of some forty or more years ago (and occasionally seventy) and in the case of business in this country nearly always considerably over-estimates the mortality experienced. The loading reserved for future expenses frequently bears no definite relation either to the probable rate of such expenses or to the office premium valued, as for example in the case when premiums have been constructed from one table of mortality and the policies are valued by a net premium valuation under another.