SOA 290?

[mlt32]

I am not understanding SOA #290, the lapse time is throwing me, not sure what that is or what it means. Can anyone explain this to me, or direct me where in the ASM manual or TIA would have covered this question...thanks.

[vagarach]

Lapse is an insurance term, usually when the policy holder no longer pays premiums when they are due, the insurance is in effect canceled, 'allowed to lapse'.

In this question since it is asking for the actuarial present value of profits, the 'lapse rate' is like saying the probability of lapse is 0.05 in a year, so the overall probability of the policy being inforce at time 1 is Px * (1-0.05), the policy holder survives and also does not lapse.

[billyMcStuds4life]

Under TIA this sort of problem would be covered under "profit measures" for traditional products under lesson J.1.4

Under this scenario you already have the year end profit pieces. In order to to get the NPV of the future profit at the end of year 7/start of year 8 i believe it is?

You must get the PV of profit in each year assuming you survivor to the start of the that year...

So you can assume year 8 (but profit is as of year end so discount)....survivor to end of year 8 then you can get year 8 profit....survive to end of year 9 then you can get year 9 profit....but of course discount appropriately
(lapse is additional decrement to death....if "lapse" confuses you I suggest looking at multiple decrements lessons as it's application shouldn't be somehting you should have trouble with....in this problem it shouldnt be "what" for the total decrement....but "when"