1.5 FPT

[mclam]

Can anyone please clarify what exactly is 1.5 Year FPT (Full Preliminary Term)?

It's the Canadian standard to use 1.5 FPT for tax reserve calculations.
And all I know it's that the first year premium is equal to the one year term (i.e. vQx), and I have problems getting the premiums for 2nd year and onwards.

Any links to related documents are appreciated.

Many thanks!!
8)

[Steve Grondin]

I actually ran across a brief description of 1.5FPT the other day. Unfortunately, I don't remember where. I do seem to remember it was an average of 1FPT and 2FPT. I didn't spend any time thinking about whether the average was of the net premiums or terminals or what. Hopefully that's enough to get you started.

[urysohn]

IIRC, the reserving chapter in Actuarial Mathematics (Bowers, et al) briefly went over FPT, 1.5FPT, and CRVM.

[Steve White]

No, Actuarial Mathematics does not discuss 1.5 FPT in the body of the text, and I don't recall it being in an exercise.

Chapter 14 or 15 (not the reserving chapters 7 and 8 that are on Course 3) discusses FPT, CRVM, and modified reserve methods in general. So on course 150 (not course 3) we would have expected the candidates, if given the set of rules (like what the benefit premium [net premium] pattern was, or what the early duration terminal reserves were) to be able to calculate the entire pattern of modified reserves. But the rules for 1.5 FPT aren't specified there.

[AJ]

"modified net premium", in respect of a premium under a policy (other than a prepaid premium under a policy that cannot be refunded except on termination of the policy), means

(a) where all benefits (other than policy dividends) and premiums (other than the frequency of payment of premiums) in respect of the policy are determined at the date of issue of the policy, the amount determined by the formula

A × [(B + C)/(D + E)]

where

A
is the amount of the premium,

B
is the present value, at the date of the issue of the policy, of the benefits to be provided under the terms of the policy after the day that is one year after the date of the issue of the policy,

C
is the present value, at the date of the issue of the policy, of the benefits to be provided under the terms of the policy after the day that is two years after the date of the issue of the policy,

D
is the present value, at the date of the issue of the policy, of the premiums payable under the terms of the policy on or after the day that is one year after the date of the issue of the policy, and

E
is the present value, at the date of the issue of the policy, of the premiums payable under the terms of the policy on or after the day that is two years after the date of the issue of the policy,

except that the amount determined by the formula in respect of the premium for the second year of a policy is deemed to be the amount that is 50% of the total of

(i) the amount that would otherwise be determined under the formula, and

(ii) the amount of a one-year term insurance premium (determined without regard to the frequency of payment of the premium) that would be payable under the policy; and



(b) in any other case, the amount that would be determined under paragraph (a) if that paragraph applied and the amount were adjusted in a manner that is reasonable in the circumstances. (prime nette modifiée)