You are an actuary for an insurance company that offers a guaranteed minimum withdrawal benefit (GMWB) to
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Question:
You are an actuary for an insurance company that offers a guaranteed minimum withdrawal benefit (GMWB) to its policyholders. The GMWB guarantees a policyholder a minimum annual withdrawal of $20,000 from their retirement savings account until the account balance is depleted. The company has sold 10,000 policies with a total account value of $200 million. The company uses the following assumptions in its GMWB valuation:
- The annual interest rate on the account balance is 5%.
- The policyholders have a life expectancy of 25 years and follow a uniform distribution of death probabilities over the year.
- The annual expense ratio of the GMWB is 1%.
Calculate the amount of reserve that the company needs to set aside to cover the potential payouts of the GMWB policyholders.
(20 marks)
Related Book For
Excellence in Business Communication
ISBN: 978-0136103769
9th edition
Authors: John V. Thill, Courtland L. Bovee
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