Future policy benefit liabilities for traditional life insurance contracts are generally calculated on a seriatim (policy-by-policy) basis or, as a simplification, based on a homogeneous group of policies (cells) rather than on an individual policy basis. If calculated on a grouped basis, a separate group of policies (cells) is generally accumulated for each product, or plan of insurance, for each year and age of issue.

Questions may arise as to whether a "negative liability" calculated for one particular policy (or cell, if liabilities are calculated on a grouped basis) of a traditional long duration insurance policy block can be offset by a positive liability on a different policy (or different cell, if liabilities are calculated on a grouped basis) of the same block of insurance policies such that the grouping of policies does not result in a "negative liability." Such "negative liability" amounts can result from the application of the net premium reserving methodology for certain life insurance contracts, in particular those for which the contractual rate of premium increase exceeds the rate of increase in the "locked-in" assumed mortality rate, and for certain longevity swaps where the longevity swap premium payments are non-cancellable. The firm believes that a "negative liability" for an insurance policy (or cell, if reserves are calculated on a grouped basis) is not appropriate and the "negative" amounts should be expensed each period. In other words, the individual policy (or cell, if reserves are calculated on a grouped basis) is the unit of account and its balance should be "floored" at zero.