3 questions

Discussion in 'SP2' started by Ekta Mehta, Apr 14, 2022.

  1. Ekta Mehta

    Ekta Mehta Keen member

    Hi I had doubts in 3 questions so Im just going to club it up
    • April 2010 Question 6 part i
    In this question, the question specifies that the mortality at age 65 is at ultimate. However the formula in the solution takes A 65 select. I couldnt understand why that's done
    • September 2012 Question 6 part i
    In this question, I believe we're talking about a without profits whole-life product. In part i, the solution seems to be detailing the surrender value formula for an endowment/term plan, or atleast that was my understanding. What am I missing?
    • October 2015 Question 2 part iiii
    in part iii of this question, I wanted to understand the calculation for the option 2 which is the risk premium reinsurance. The solution has a formula for the reinsurance premium and there the entire bit has been multiplied by 2. What's the reason for that?

    Thank you in advance!
     
  2. Lynn Birchall

    Lynn Birchall ActEd Tutor Staff Member

    Hi Ekta

    (1) April 2010 Question 6 part i

    [Firstly a comment: the calculation of option premiums using the conventional method and the North American method was part of the ST2 syllabus and Core Reading at the time this question was set. Although there is still some description of option premium calculcations in SP2, much of thsi detail has been removed.]

    The solution uses select mortality to calculate any of the company's 'standard' premium rates (as a 'standard' customer goes thoruigh underwriting). So, the A65 select is used to calculate the company's standard premium for a whole life policy for a sum assured of 10,000 at age 65.
    A policyholder who has bought their original policy at age 60, and exercises the option to take out this new policy at age 65 without evidence of health, is assumed to have ultimate mortality. The formula reflects this by using ultimate mortality to value the premiums paid by this policyholder and the benefits paid to them (eg the D65 and A65 ultimates in the EPV(B) expression).

    (2) September 2012 Question 6 part i

    Yes it is about a whole-life product. Are you perhaps missing the retrospective nature of the formula in the solution? Retrospective accumulation of premiums less benefits and expenses from age at entry (x) up to duration at surrender (t)?

    (3) October 2015 Question 2 part iiii

    That the revised best estimate mortality assumption is 50% of the 'best estimate' mortality assumption in the pricing basis (and the present values of payments and death and payments on survival quoted in the question).

    Hope these help
    Lynn
     

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