On Bonus and Bonus Prognoses in Life Insurance

The surplus on a life insurance policy is defined, at any time during the term of the contract, as the difference between the second order retrospective reserve and the first order prospective reserve. General principles for redistribution of the systematic part of the surplus as bonus are formulated, and various special bonus schemes are discussed. Techniques for forecasting future bonuses are worked out in an extended model with stochastic experience basis. Numerical illustrations are provided.