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April 2016 Q11

M

Meg

Member
Hi,
Could anyone please give me some suggestions of how the examiner obtainer the equation for the case where both lives are alive in Q11?
I understand the cases where only one life is alive as it is the EPV of sum assured - EPV future premiums and I'm certain that the similar relationship is being used to calculate the two lives instance, however I do not recognise the relationship used to convert from the SA - premium into a pure annuity relationship.
Thanks!
 
The Examiners' Report appears to be using a net premium reserve formula to calculate the reserve in the case where both lives are alive (see pg 37 of the Tables). I'd be wary of using this approach because the question doesn't specifically state that net premium reserves are calculated for the policies.

You can get the correct answer by calculating the reserve using the EPV of future benefits - EPV of future premiums and I expect the Examiners would have awarded full marks for this approach.
 
Thanks Lucy, that makes sense. It does get me there, but their solution looked so short and tidy I figured it would be useful to understand! Thank you.
 
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