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September 2011 no 13

N

nad07

Member
I am working through the Examiner's report and cannot figure out how the following have been calculted:
-Surrender claim
- Increase in reserves
- Interest on reserves
 
Hi nad07,

Reserves - same advice really...

I've shown you exactly how this works on Question 13.10, so have another go yourself with this one...

Profit vector = profits at end of year per pol in force at START OF THAT YEAR.

So, if we are in year 3, everyone is alive at time 2, the beginning of Year 3 (think of it as magic).
So, the money we have is 2V rolled up with interest.
The money we need is 3V multiplied by the probability of surviving Year 3.
Cost of inc reserves = money we need minus money we have.

Now, this is all very well but what about the magic? Actuaries don't usually like magic. We prefer logic and reality. So, we calculate profit signature = profits at end of year per pol in force at START OF THE CONTRACT = profit vector * prob a life survives to start of that year.

Surrenders

To surrender their policy in Year 2, say, they must:
- NOT die 1 - 0.00618
- surrender 0.05
Then they will collect 75% of premiums so far, 2 * 4700 * 75%

Good luck!
John
 
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