Broverman Weekly Questions - Jan 30

[Frenchie]

Question

The insurance is a 2-year endowment. I follow the standard formula for calculating the Asset Share using recursion. My question is this: I see that the Asset Share at the end of year two is equal to the endowment benefit ($1,000). Is this always true for endowments? My thought is that it is since it's the end of the contract and therefore, those still around get to cash out, therefore Asset Share should equal Endowment benefit. I hope that's right b/c that's what makes sense to me.

[Gandalf]

In real life, you would want the ending asset share for an endowment insurance to exceed the endowment benefit. Otherwise, after you pay the benefit, the company has made 0 profit.

[Frenchie]

Originally Posted by Gandalf

In real life, you would want the ending asset share for an endowment insurance to exceed the endowment benefit. Otherwise, after you pay the benefit, the company has made 0 profit.

But with the way the recursions are set up, the asset share goes to the survivors each year, not the company, right? (why shouldn't the SOA suspend reality every now and then ) In that case, if we ignore the need for profit, is my previous analysis correct?

[Gandalf]

Originally Posted by Frenchie

But with the way the recursions are set up, the asset share goes to the survivors each year, not the company, right? (why shouldn't the SOA suspend reality every now and then ) In that case, if we ignore the need for profit, is my previous analysis correct?

I would have to dig out my old Actuarial Mathematics text to be sure (and I'm not going to), but I would be really surprised if it suggested the asset share goes to the survivors. It is calculated on a "per survivor" basis, but that's not the same as saying they get it.

The SOA suspends reality like profits quite often, but I don't think you could count on them suspending reality.