Asset Share vs. Reserve
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Rishabh Surana
Asset share is the value which the company holds till date i.e. the actual deposits in respect of a policy. However, (Prospective) Reserves are something which the company should hold to meet all its liabilities. Asset shares directly depends on what has actually happened in the past (ignoring any smoothing, adjustments) whereas Reserves are something which is based on the assumptions about the future and will largely depend on the actuary’s views about the future.
In principle, the Prospective reserves should be lower than the assets share for whole of the term of the policy. The exception to this is possible for few early years where the asset share is negative and the negative reserves may not be allowed to hold. I would also not say that for all the other years, the reserves will be consistently lower than the asset shares, because a sudden fall in the assets (say equity) can lower the asset share than reserves, but this may not be reflected in reserves as a fall in liabilities. This is more common for WP business.
Reserves are targetted to meet just the benefit payments over time, so if everything happens as assumed, reserves will be equal to zero at the end of the term whereas the asset share would be greater than zero, the remainder representing the profits to the company.
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