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. 28.4 A conventional 3-year endowment assurance is issued to a life aged exactly 56. The details are: sum assured 10,000 payable after 3 years or at the end of the year of death, if earlier surrender value equal to the return of premiums without interest, less 400, at the end of the year of surrender annual premium 3,250 paid at the start of each year. The company calculates its reserves for this contract on the following basis: Expenses: 30 at the start of Year 2 32 at the start of Year 3 Surrender probabilities: 4% of policies in force at the end of Year 2 only Mortality: AM92 Ultimate Interest: 2% po Calculate the prospective gross premium reserves required per policy in force at the start of Years 2 and 3, according to the above basis, using a cashflow projection approach. Calculate the expected profit arising in the second year per policy in force at the start of Year 2, assuming the following profit test experience basis: Expenses: as reserving basis Surrenders: as reserving basis Reserves: as calculated in part (0) Mortality: 75% of AM92 Select from policy outset Interest: 4% po (iii) Explain why the expected profit calculated in part (it) is not zero