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  #11  
Old 08-12-2011, 02:22 PM
Chuck Chuck is offline
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Quote:
Originally Posted by Ranjith View Post
Sorry for the incomplete question...

In the model assumed profit as 8% of the premium:
Though reserve margin leads to change the IRR, profit as a percentage of premium remains as 8% .
I intutively feel that it should be changed....

Please help to understand the conflict..!!
That I can answer I think. If your investment rate matches your discount rate and the total of the change in reserves always equals zero (ie all the policies are lapsed at the end of your projection), reserve levels have no effect on your profit margin. In other words the present value of your investment returns will always equal the present value of your change in reserves.

A simple example of a 3 year term (where i = investment rate and X1, X2, X3 equal the reserve):

A = X1 * i/(1+i) + X2*i/[(1+i)^2] + X3*i/[(1+i)^3]

B = X1 + (X2-X1)/(1+i) + (X3-X2)/[(1+i)^2] + -X3[(1+i)^3

A = the PV of investment income.

B = PV of change in reserves.

Do the math (and if I did the timing right) A-B = 0

Chuck
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  #12  
Old 08-12-2011, 02:57 PM
Ranjith Ranjith is offline
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Thanks...

"total of the change in reserves always equals zero (ie all the policies are lapsed at the end of your projection)"

Is that implies, for a term insurance product this is always true ?
(if investment yield equals discount rate)

How about the Endowment product?
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  #13  
Old 08-12-2011, 04:05 PM
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1. reserves before you issue the policy are zero.
2. reserves after the policy is terminated are zero.
therefore, net reserve changes over the entire policy lifetime are also zero.

For the endowment case, you need to recognize that reserves immediately return to zero when you pay the endowment.

Different patterns of reserves are possible, and they affect the TIMING of when the profit is recognized.

Even if your percentage "loading" is equal, the different levels of assumed mortality will also produce different timing of profit release. This will affect the IRR calculation.

Where are you located? I suspect it is outside North America, right?
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  #14  
Old 08-22-2011, 06:44 AM
Ranjith Ranjith is offline
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Default Extend 10 year term spead term model to endowment...

Please help, 10-year term, 1000 sum assured, spread sheet model to extend:

(1) 10-year, endowment insurance.(1000 Sum assured)
(2) Survival benefits of 300 at the end of five years and 700 at the end of 10 years.

(Here, I attached the Spread sheet model)
Attached Files
File Type: xls Copy of Term-2.xls (68.0 KB, 132 views)
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  #15  
Old 08-22-2011, 02:32 PM
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If this is your homework, you should be doing it yourself.

If this is REAL work, then God have mercy on your company's policyholders.
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  #16  
Old 08-23-2011, 12:29 AM
Ranjith Ranjith is offline
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Default Term Product...Extend

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Originally Posted by Hydraskull View Post
If this is your homework, you should be doing it yourself.

If this is REAL work, then God have mercy on your company's policyholders.
I try to understand my self certain product development concepts in TRadinional insurance products.....
Actually, real problem is something else....But I think by clarifying these points I can solve the orginal problem...!!
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  #17  
Old 08-23-2011, 09:13 AM
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Quote:
Originally Posted by Ranjith View Post
Please help, 10-year term, 1000 sum assured, spread sheet model to extend:

(1) 10-year, endowment insurance.(1000 Sum assured)
(2) Survival benefits of 300 at the end of five years and 700 at the end of 10 years.

(Here, I attached the Spread sheet model)
Show us what you think it ought to be and we will critique it for you.

Hint: For term, benefits are for deaths only. For endowment/partial endowment, benefits are amounts paid to those who survive to the given date. Add those together and put them in place of death benefits in the term formula.
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  #18  
Old 08-23-2011, 10:53 AM
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Those are some high IRRs. I suspect you're doing something very wrong.
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  #19  
Old 08-23-2011, 12:09 PM
Ranjith Ranjith is offline
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Default Term model...

Quote:
Originally Posted by Jack View Post
Those are some high IRRs. I suspect you're doing something very wrong.
Thanks,Yes, I noticed IRR is quite high ,
But the model seems (guess) to be correct, if there is a mistake,please help me to find out it..!!
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  #20  
Old 08-26-2011, 09:58 AM
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JMO is right - you need to reflect the survivor benefits. I believe the $300 & $700 should go in col M. Dumb question: you say the annual profit is 5%. 5% of what?
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