Some points arising in a net premium valuation

Extract

For many years it has been fashionable to assume that a published Net Premium Valuation is merely a piece of window-dressing designed to reproduce the results obtained by an internal Bonus Reserve Valuation carried out for the information of the office only. It may be as well, therefore, to start by giving some of the reasons which make it desirable to re-examine a few of the problems which arise in a Net Premium Valuation, viz.:

(1) The Examiners require our students to have a thorough knowledge of the Net Premium Valuation Method, both as regards the technique of its application and the results which it can be expected to produce.

(2) A Net Premium Valuation probably forms the main instrument for measuring the surplus to be distributed to policyholders in Industrial Funds.

(3) Even if the Net Premium Valuation were no more than window-dressing, the published results have to agree with those obtained by the internal Bonus Reserve Valuation and a thorough understanding of the method is necessary to ensure this.