GROSS PREMIUM VALUATION METHOD IN DETERMINING PREMIUM RESERVES IN LIFE INSURANCE

Abstract

Abstract: Life insurance companies maintain reserve funds to pay insurance policy claims, known as premium reserves. Premium reserves are calculated using two approaches: retrospective and prospective. The prospective approach involves calculating the present value of all future expenses minus the total future income for each policyholder, using the Gross Premium Valuation (GPV) method. The GPV method takes into account initial costs, maintenance costs, and administration costs. The case study results indicate that the premium reserve using the GPV method starts at zero in the first year, increases until the last payment year, and then decreases after the payment period until the end of the coverage period. For policyholders of different genders but the same age, the premium reserve for men is greater than for women. Additionally, for male policyholders of varying ages, the premium reserves required increase with age. Furthermore, for male policyholders of the same age but with different interest rates, a higher interest rate results in a smaller premium reserve requirement.