CT5 September 2014 Question 11(i)

[Han]

Hello,
I have three questions regarding CT5 September 2014 Question 11(i).

1) The solutions states that the ADS is "the difference between the sum assured and the reserve for the policy that actually became a death". However, in the online class room, it is shown that ADS=DSAR*n, where n is the number of policyholders who actually die. Hence, I am wondering if this definition of the ADS is specific to the context of the question?

2) If instead the question told us that during 2013, there were 2 death claims instead of 1 (on a policy which was issued on 1 January 2000 for a sum assured of 15000), would we use the ADS=DSAR*n formula?

3) If instead the question told us that during 2013, there were 2 death claims instead of 1, but this time the policy issue date and sums assured were different, would we use the same method as the solution but do a separate calculation for each claim?

Thanks!

 

[Joe Hook]

Hi,

1) Yes a slightly different approach is needed on this question to some others. Typically we assume that all policyholders are the same age, have the same mortality AND the same sum assured. Here we are dropping the final assumption. Hence, each policy within the portfolio will have a different DSAR. Therefore, when we do actual death strain we need to take the policy in question and calculate the ADS for that policy as sum assured on death - reserve at end of the year.

2) If there were two claims that has the same sum assured you could work out the DSAR for one of the policies and double it yes.

3) However, it would be more likely that each policy had a different sum assured and so you'd work out the ADS for each individual policy and sum them together.

Joe