A policy value is defined as the expected value of future outgo less expected present value of future inflow for a policy. A reserve is defined as the actual amount you hold in respect of the liability.
A policy value is simply a theoretical concept that can be used as a method of deciding how much you should hold as reserves.
However other methods instead may be used to determine how much to hold as a reserve such as:
- Holding a certain % of policy reserve
- Holding a % of net/gross premium (as you may have seen in a profit testing example)
- Holding a reserve to meet future losses with a certain level of confidence, for example a 99% VaR reserve (outlined in DHW)