Initial expense allowances in a net premium valuation

Extract

The subject of making an allowance for initial expenses in a net premium valuation is one which has long interested actuaries, and it is usually associated with the name of Zillmer who first wrote an article on it in 1863. The following note, based on practical experience of valuing a young and rapidly growing life fund, may be of interest to students.

The normal method of making such an allowance is, in effect, to adjust the net premium used in the valuation by the equivalent of the initial expense allowance spread over the whole duration of the policy.