Note on Suttie's ‘Some points arising in a net premium valuation’

Extract

The conclusion reached from a consideration of Table 1, that ‘in a perfectly stationary fund…the bonus for which the premium scale is loaded will emerge from a net premium valuation whatever margin is allowed between the experience and the valuation rate of interest’, is difficult to accept without a more detailed investigation.

At first sight it appears to be supported by the incontrovertible argument that if the premiums are loaded to allow for a £2 % bonus and the experience is exactly that assumed in the calculation of the premiums, the profit made must be sufficient to pay a level bonus of £2 % per annum irrespective of the valuation basis. In a stationary fund, therefore, it might be argued that the valuation basis cannot affect the surplus brought out each year.