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PHI Reserving

  • Mark Turner


Papers devoted to the subject of reserving for Permanent Health Insurance (PHI) are not exactly numerous. The author could not find one published in the U.K., although there were papers in the U.S.A., Australia and South Africa.

Most U.K. PHI papers have sought to cover the topic in its entirety and therefore do give views on reserving issues. Ironically, this paper in seeking to focus on reserving did, incidentally, find itself wandering over a large part of the PHI actuarial countryside. Perhaps this is unavoidable.

PHI reserving is not just a question of ensuring adequate solvency. The reserving basis we choose can aid or hinder our understanding of the business. After all, the recognition of profits is defined by the reserving basis. If management is going to track profits in order to assist decisions on marketing position, financial strength of the office, etc. then it needs to be concerned that the reserving basis is not distorting the emerging results. An equivalent argument can be put forward in respect of the capital requirements of the business.



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(1) Haberman, S. (1987). ‘Long-Term Sickness and Invalidity Benefits: Forecasting and Other Actuarial Problems’. J.I.A., 114, 3, 467.
(2) Sanders, A. J. and Silby, N. F. (1986). ‘Actuarial Aspects of PHI in the UK’. J.S.S., 31, 1.
(3) Sansom, R. J. (1977). ‘Practical PHI’. J.S.S., 22, 64.
(4) Hamilton-Jones, J. (1972). ‘Actuarial Aspects of Long-Term Sickness Insurance’. J.I.A., 98, 409.
(5) Bond, D. J. (1963). ‘Permanent Sickness Insurance’. J.S.S., 17, 195.
(6) Westwood, O. O. (0000). ‘The Actuarial Aspects of Disability Income Insurance’. T.I.A.A.N.Z., 000, 000.
(7) Hunter, O. O. and Phillips, O. O. (1932). ‘Disability Benefits in Life Insurance Policies’. A.S.A., 000, 000.
(8) Waters, H. R. (1984). ‘An Approach to the Study of Multiple State Models’. J.I.A., 111, 363.


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