# Why do we assume time 0 reserves are equal to 0?

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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.