What is a zillmer adjustment, when it's at home?

Question

What is a zillmer adjustment, when it's at home?

Answer 1

A zillmer adjustment is pretty much now defunct.  It used to be an adjustment to make net-premium reserves in actuarial calculations less prudent; however, since most people now use gross premium reserves, it's quite rare.

The aim of the adjustment was to make an allowance for the high up-front costs of selling an insurance contract.  Without doing this, the cost of the high initial expenses AND setting up reserves makes insurance a pretty unattractive prospect under the net-premium method.

There's a reasonable article at:

http://en.wikipedia.org/wiki/Zillmerisat...