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Negative Policy Values
Published online by Cambridge University Press: 18 August 2016
Extract
The subject of Negative Policy Values has recently been touched upon, more than once, in actuarial discussions, and its bearing upon the general question of insolvency is now beginning to be realized.
That the reserve made by many companies is reduced, by the appearance of some of their policy values as assets instead of as liabilities, is a fact well known, and difference of opinion no doubt exists as to the propriety of such a state of affairs. Although I believe it may be assumed, that the general opinion of competent judges is, that so long as a company is popular, and its valuations otherwise strong, the existence of a moderate amount of negative values among its assets is of small importance,—it is important to bear in mind that these negative values can only be realized under favorable circumstances, and at the first symptoms of unpopularity in a company they begin to disappear. Whenever, therefore, the popularity of an office is on the wane, the extent of negative policy values taken credit for by it, in its reserve, becomes a matter of vital importance. Or, in other words, to those companies which do not require assistance from such a source, credit may be given for negative values; but to those companies which do require such assistance in showing sufficient funds, it is at least doubtful whether such credit should be given; and this, because the realization of negative values depends so entirely on the credit of the office.
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- Copyright © Institute and Faculty of Actuaries 1876
References
page 99 note * This appears to be an important suggestion which deserves to be worked out more fully.—ED. J. I. A.
page 101 note * The gross premiums used throughout this paper are average premiums constructed from the with-profit premiums charged by seventeen Scotch companies. At the four ages chiefly exemplified they are
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