Persistency rate question

[vitamink]

I don't quite understant why first year's persistency rate is alwasys 1, for example, 2004.44 said "90% of first year policy holder persis into the second year". I thought that 10 poeple lapse at year 1, so prsistency rate should be 0.9.

And in 2002.36, first year's persistency rate is not zeroa t all, So I think I may miss some assumption for Asset Share Model.

any suggestion?

[2M]

If a policy always runs for a year and assume the insured always pays the premium on time. How many would get canceled before the year is out?

So in your example, 10 people purchase policies at the start of year 1, you still have all 10 finish the year. If persistency is 90%, only 9 of those 10 are around to sinish the second year. People having policies in the third year are 10 * 0.9 * 0.9 = 8.1

[ReserveRage]

Think back to interest theory (Course 2, oh so long ago). Remeber you could discount to the beginning or end of the year. In these problems, we're always "discounting" to the beginning of the policy period, not end. This is why the discount factor is always 1.00 for year 1 also; year 1 is at 1/1/xx not 12/31/xx.