ACTL3151 Presentation

Mod7 Q2
Alex Wu
Question Breakdown and Part A

𝟏
 n=2
𝟏
𝟑𝟎𝟎𝟎 𝑨𝟓𝟎: 𝟐|@𝒊=𝟐𝟎%
 x=50 ⇒ 𝑷𝟓𝟎: 𝟐|@𝒊=𝟐𝟎% =
𝒂ሷ 𝟓𝟎: 𝟐|@𝒊=𝟐𝟎%
 i=20% (EAR)
 $3000 (Benefit paid only if accidental death)
 Decrement 1  accidental death cause
 Decrement 2  other death cause
Approach:
 Multiple Decrement Tables MDT
 Modifying provided lifetable
 Deriving Dependent Probabilities
 Equivalence Principle
 EPV(Future Benefits)
 EPV(Future Premiums)
 Solve for Premiums
 Prospective Reserves
 EPV(FB1) less EPV(FP1) i.e. at EPV at t=1
Multiple Decrement Tables (MDT)
 Lifetable with ≥2 decrements instead of 1
Notation:
 𝑎𝑙𝑥 − Total No. lives at Age x
 𝑎𝑑 𝑘𝑥− 𝑁𝑜. 𝑜𝑓 𝑙𝑖𝑣𝑒𝑠 𝑟𝑒𝑚𝑜𝑣𝑒𝑑 𝑏𝑒𝑡𝑤𝑒𝑒𝑛 𝑥 𝑎𝑛𝑑 𝑥 + 1,
𝑑𝑢𝑒 𝑡𝑜 𝑘 𝑡ℎ 𝑓𝑎𝑐𝑡𝑜𝑟
 k=1,2,3,…,m
 Recursive Relationship:
𝑚

𝑎𝑙 = 𝑎𝑙 𝑘
𝑥+1 𝑥 − ෍ 𝑎𝑑 𝑥
𝑘=1
Dependent Probabilities
1. Prob. of Death within 1 yr. at age‘ x’ due to factor ‘k’
𝒌
𝒂𝒅 𝒌𝒙
𝒂𝒒 𝒙 =
𝒂𝒍 𝒙
2. Prob. of Death within 1 yr. at age ‘x’ due to sum of ALL factors
𝒎

𝒂𝒒 = ෍ 𝒂𝒒 𝒌
𝒙 𝒙
𝒌=𝟏
3. Prob. of Surviving at least 1 yr. at age ‘x’
𝒂𝒍 𝒙+𝟏
𝒂𝒑 𝒙 = 𝟏 − 𝒂𝒒 𝒙 =
𝒂𝒍 𝒙
4.
𝒂𝒍 𝒙+𝒕
t 𝒂𝒑 𝒙 = 𝒂𝒍 𝒙
= 𝒂𝒑 𝒙 ∙ 𝒂𝒑 𝒙+𝟏 ∙∙∙ 𝒂𝒑 𝒙+𝒕−𝟏
Data Provided
𝒌
𝒂𝒍 𝒙 − 𝑁𝑜. 𝑙𝑖𝑣𝑒𝑠 𝑎𝑡 𝐴𝑔𝑒 𝑥 𝒂𝒇𝒇𝒆𝒄𝒕𝒆𝒅 𝒃𝒚 𝒌𝒕𝒉 𝒅𝒆𝒂𝒕𝒉 𝒇𝒂𝒄𝒕𝒐𝒓
Accidental Other
𝒙 𝒂𝒍 𝟏 𝒂𝒍 𝟐
𝒙 𝒙
50 3,600 6,400
51 2,160 5,040
52 432 2,540
Modifying the Data 1

𝒙 𝒂𝒍 𝟏 𝒂𝒍 𝟐 𝒂𝒍
𝒙 𝒙 𝒙
50 3,600 + 6,400 = 10,000
51 2,160 + 5,040 = 7,200
52 432 + 2,540 = 2,972

𝒂𝒍 𝟏 + 𝒂𝒍 2 = 𝒂𝒍
𝒙 𝒙 𝒙
Modifying the Data 2

𝒙 𝒂𝒍 𝟏 𝒂𝒍 𝟐 𝒂𝒍 𝒂𝒅 𝟏
𝒙 𝒙 𝒙 𝒙
50 3,600 6,400 10,000 1,440
51 2,160 5,040 7,200
52 432 2,540 2,972

𝟏 1 𝟏
𝒂𝒍 50 − 𝒂𝒍 51 = 𝒂𝒅 50
Modifying the Data 2

𝒙 𝒂𝒍 𝟏 𝒂𝒍 𝟐 𝒂𝒍 𝒂𝒅 𝟏 𝒂𝒅 𝟐
𝒙 𝒙 𝒙 𝒙 𝒙
50 3,600 6,400 10,000 1,440
51 2,160 5,040 7,200 1,728
52 432 2,540 2,972 -

𝟏 1 𝟏
𝒂𝒍 51 − 𝒂𝒍 52 = 𝒂𝒅 51
Modifying the Data 2

𝒙 𝒂𝒍 𝟏 𝒂𝒍 𝟐 𝒂𝒍 𝒂𝒅 𝟏 𝒂𝒅 𝟐
𝒙 𝒙 𝒙 𝒙 𝒙
50 3,600 6,400 10,000 1,440 1,360
51 2,160 5,040 7,200 1,728 2,500
52 432 2,540 2,972 - -

2 2 2
𝒂𝒍 50 − 𝒂𝒍 51 = 𝒂𝒅 50
Modifying the Data 2

𝒙 𝒂𝒍 𝟏 𝒂𝒍 𝟐 𝒂𝒍 𝒂𝒅 𝟏 𝒂𝒅 𝟐
𝒙 𝒙 𝒙 𝒙 𝒙
50 3,600 6,400 10,000 1,440 1,360
51 2,160 5,040 7,200 1,728 2,500
52 432 2,540 2,972 - -

2 2 2
𝒂𝒍 51 − 𝒂𝒍 52 = 𝒂𝒅 51
Equivalence Principle
 EPV of outgoing Future Benefit = EPV of net Future Premium
 E(PVFB0 ) = E(PVFP0 )
 Note: APV=EPV
 Premiums expected to cover expected payouts given:
 Interest rates

 Mortality Rates
 Actuarially Fair

 Alt.: 𝐸[0L]=0, Expected loss at time of issue is zero

where: 0L = PVFB0 − PVFP0
 𝒙 𝒂𝒍 𝟏 𝟐
𝒙 𝒂𝒅 𝒙 𝒂𝒅 𝒙
EPV(Premiums) 50 10,000 1,440 1,360
 Receive in Advance 51 7,200 1,728 2,500
 Future Premiums contingent on survival 52 2,972 - -
 Level Annual Premiums

𝐸𝑃𝑉 𝑃𝑟𝑒𝑚𝑖𝑢𝑚𝑠 = 𝑃 + 𝑣. (𝑃 𝑎𝑝 50 )
= 𝑃 1 + 𝑣. 𝑎𝑝 50
1 𝑎𝑙 𝑥+1
=𝑃 1+
1+𝑖 𝑎𝑙 𝑥
1 7200
=𝑃 1 + ∗
1.2 10000
= 1.6𝑃
P P

0 1 2
 𝒙 𝒂𝒍 𝟏 𝟐
𝒙 𝒂𝒅 𝒙 𝒂𝒅 𝒙
EPV(Benefits) 50 10,000 1,440 1,360
 Paid at Year End 51 7,200 1,728 2,500

 Future payouts contingent on dying 52 2,972 - -

1
EPV Benefits = 3000𝐴50: 2|@𝑖=20%
= v. 3000 aq 150 + v 2 . 3000 ap 50 . aq
1
51
1 a𝑑 150 1 a𝑙 51 a𝑑 151
= 3000 + 2
1.2 a𝑙 50 1.2 a𝑙 50 a𝑙 51
1 1440 1 7200 1728
= 3000 + 2
1.2 10000 1.2 10000 7200
= 720
3000 3000

0 1 2
Applying Equivalence Principle
 𝐸[0L]=0 ⇒ E PVFB0 − PVFP0 = 0
 0L = PVFB0 − PVFP0
 EPV(Future Premiums)=EPV(Future Benefits)
 1.6P=720
 P=720/1.6
=$450
Net Premium Reserves
 Prospective Reserve ignoring future expenses
 Future Loss at time ′t′: tL = PVFB𝑡 − PVFP𝑡
 Min. amount set aside to meet future obligations
 tV𝑥 = 𝐸[tL|T x > t] = E PVFBt − PVFPt
= EPV(Assurance) − EPV(FuturePremiums) At Time ‘t’

 n-year term insurance at future time ‘k’

1 1
1 𝐴𝑥+𝑘:𝑛−𝑘| − 𝑃𝑥:𝑛| 𝑎ሷ 𝑥+𝑘:𝑛−𝑘| , 𝑘 < 𝑛
k 𝑥:𝑛| = ൝
V
0 ,𝑘 ≥ 𝑛
Part B
Case: 2-year term insurance, at future time k=1
1
 1V50: 2|@𝑖=20% = 𝐸𝑃𝑉(𝐹𝐵1 ) − 𝐸𝑃𝑉(𝐹𝑃1 )
 𝐸𝑃𝑉 𝐹𝐵𝑘 :
1 1
 k = 0: v. 3000 aq 50 + v 2 . 3000 ap 50 . aq 51
1 𝟏 𝟏
 k = 1: v. 3000 aq 50 + 𝐯 2 𝟏 . 𝟑𝟎𝟎𝟎 ap 50 . 𝒂𝒒 𝟓𝟏 = 𝟑𝟎𝟎𝟎 𝐯. 𝒂𝒒 𝟓𝟏

 𝐸𝑃𝑉 𝐹𝑃𝑘 :
 k = 0: P + v. P ap 50

 k = 1: P + v. 𝐏 ap 50 =𝐏
Part B
Case: 2-year term insurance, at future time k=1
1
 1V50: 2|@𝑖=20% = 𝐸𝑃𝑉 𝐹𝐵1 − 𝐸𝑃𝑉 𝐹𝑃1
1
= 3000 v. aq 51 − P 𝒙 𝒂𝒍 𝒙 𝒂𝒅 𝟏
𝒙 𝒂𝒅 𝟐
𝒙

= 3000 v. aq 151 − P 50 10,000 1,440 1,360

1 1728 51 7,200 1,728 2,500
= 3000 . − 450
1.2 7200 52 2,972 - -
= 600 − 450
= $𝟏𝟓𝟎
Thank You