Actuarial Outpost > Life Term and endowment life product profit calculation..
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#11
08-12-2011, 01:22 PM
 Chuck Member SOA AAA Join Date: Oct 2001 Location: Illinois Posts: 4,604

Quote:
 Originally Posted by Ranjith 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
#12
08-12-2011, 01:57 PM
 Ranjith Member Join Date: Feb 2010 Posts: 101

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)

#13
08-12-2011, 03:05 PM
 JMO Carol Marler Non-Actuary Join Date: Sep 2001 Location: Back home again in Indiana Studying for Nothing actuarial. Posts: 37,660

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
08-22-2011, 05:44 AM
 Ranjith Member Join Date: Feb 2010 Posts: 101
Extend 10 year term spead term model to endowment...

(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
 Copy of Term-2.xls (68.0 KB, 133 views)
#15
08-22-2011, 01:32 PM
 Hydraskull Member Join Date: Jun 2008 Location: Svalbard Studying for life Favorite beer: Six Point Resin Posts: 6,435

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
08-22-2011, 11:29 PM
 Ranjith Member Join Date: Feb 2010 Posts: 101
Term Product...Extend

Quote:
 Originally Posted by Hydraskull 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...!!
#17
08-23-2011, 08:13 AM
 JMO Carol Marler Non-Actuary Join Date: Sep 2001 Location: Back home again in Indiana Studying for Nothing actuarial. Posts: 37,660

Quote:
 Originally Posted by Ranjith 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.
__________________
Carol Marler, "Just My Opinion"

Pluto is no longer a planet and I am no longer an actuary. Please take my opinions as non-actuarial.

My latest favorite quotes, updated Nov. 20, 2018.

Spoiler:
I should keep these four permanently.
Quote:
 Originally Posted by rekrap JMO is right
Quote:
 Originally Posted by campbell I agree with JMO.
Quote:
 Originally Posted by Westley And def agree w/ JMO.
Quote:
 Originally Posted by MG This. And everything else JMO wrote.
And this all purpose permanent quote:
Quote:
 Originally Posted by Dr T Non-Fan Yup, it is always someone else's fault.
MORE:
All purpose response for careers forum:
Quote:
 Originally Posted by DoctorNo Depends upon the employer and the situation.
Quote:
 Originally Posted by El Actuario Therapists should ask the right questions, not give the right answers.
Quote:
 Originally Posted by Sredni Vashtar I feel like ERM is 90% buzzwords, and that the underlying agenda is to make sure at least one of your Corporate Officers is not dumb.
#18
08-23-2011, 09:53 AM
 Jack Member Join Date: Sep 2001 Location: 100 Luten Avenue, 10312 Studying for Life Favorite beer: Free Beer Posts: 14,880

Those are some high IRRs. I suspect you're doing something very wrong.
#19
08-23-2011, 11:09 AM
 Ranjith Member Join Date: Feb 2010 Posts: 101
Term model...

Quote:
 Originally Posted by Jack 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..!!
#20
08-26-2011, 08:58 AM
 Wally Member Join Date: Oct 2001 Favorite beer: Kornbluth home brew Posts: 859

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?