Is this a simplifying assumption that is used for all contingencies exams and tests? Or is there a rational explanation?
I understand that before a policy is sold, no reserves are required. But as the policy is sold, surely one can (and should) set up a reserve, say particularly if we are pricing reserves using zeroization? Furthermore, surely there are regulations which ensure insurance companies hold reserves for consumer protection purposes (and these would include time 0 reserves).
Also, unless premiums are calculated using the equivalence principle and the reserving basis is the same as the premium pricing basis, then surely time 0 reserves are not strictly 0?
Test 2 question 4b is a good example where they've made the tV0=0 assumption.