QUESTION 3 You are asked to price a fully discrete 4-year term insurance policy for a policyholder
Question:
QUESTION 3
You are asked to price a fully discrete 4-year term insurance policy for a policyholder aged x :
- The death benefit is 1000 payable at the end of the year of death.
- The gross annual premium is G payable for two years.
You have decided to use the following assumptions to price the policy:
- qx+k=0.05 for k≥0
- i=10%
- Annual expenses are 10% of each premium.
- Profit loading is equal to 5% of each premium.
(a) Determine G using the equivalence principle, including the profit loading.
(b) Determine the gross premium reserve at time k=0,1,2,3,4 , including the profit loading.
The regulator requires the insurer to hold 2 times the gross premium reserves you have calculated in (b).
(c) Explain the rationale of the regulator’s requirement and calculate the required gross premium reserves the insurer is to hold.
(d) Calculate the profit vector Prk for k=0,1,2,3,4 .
(e) Calculate the profit margin at a hurdle rate r=12% .
Cost Management Measuring Monitoring and Motivating Performance
ISBN: 978-0470769423
2nd Canadian edition
Authors: Leslie G. Eldenburg, Susan Wolcott, Liang-Hsuan Chen, Gail Cook