Reserves can be formulated prospectively or retrospectively. The amount of prospective reserves at a point in time is derived by subtracting the actuarial present value of future premiums from the actuarial present value of future insurance benefits. Retrospective reserving subtracts accumulated value of benefits from accumulated value of premiums as of a point in time. The two methods yield identical results.
In actuarial notation, reserve is denoted as V. For a whole life insurance of 1 payable at the end of the year of death issued on a life aged x with level premium of P per year determined at the time of policy issuance, reserve at time t can be calculated prospectively using notations for actuarial present value as:
