Accounting Glossary of Life Insurance

Zillmer's method

A method of policy reserve* accumulation.
Under the method, the amount of policy reserve* is accumulated in a smaller amount in the first year.
Since life insurance companies generally incur significant amounts of initial operating expenses* in the first year, this initial strain will be amortized over a certain period.

*J-GAAP

Footnotes

Since the ratio of new policies to the number of policies-in-force is relatively high, newly-founded insurance companies are allowed to use Zillmer's method according to laws and regulations. 
In the 5-year Zillmer's method, policy reserves of new policy will begin to be accumulated in the same manner as in the net level premium method after five years.

Graph showing changes in the insurance policy reserves with the amount of policy reserves on the vertical axis and the number of years passed on the horizontal axis. Using the net level premium method, the amount of policy reserves increases linearly. The graph shows that Zillmer’s method, represented by a dotted line, shows a lower amount of policy reserves until the lines intersect at the five-year point.

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