Development of New Persistency Values and Analysis of Equity

to Optimize Company Profit

By
Monica E. Revadulla

A FINAL REPORT

In partial fulfillment of
The requirements for the
Internship and Degree of
BS Applied Mathematics
Actuarial science
submitted to
Mr. Jonathan B. Mamplata
Adviser/Assistant Professor 1
University of the Philippines Los Banos

May 21, 2013

ABSTRACT
The internship was taken at First Life Financial Co. Inc, Office of the Actuary, 7th Floor,
First Life Center, 174 Salcedo St., Legaspi Village, 1229 Makati City, Philippines. The primary
objective was to propose a new set of persistency ratios based on the comparison and analysis
between the current and experienced persistency values of the year 2012, with the 2012 database
as basis, which would be recommended to be the current persistency for the year 2013. Various
useful hotkeys and macros in Excel were learned every day and the importance of an accurate set
of qx for the profit generation of the company was emphasized. The secondary objective was to
propose a tabular schedule of the purchase time of PSEI stocks and selling time of First Life stocks.
An optimal schedule must be obtained to ensure profitability of the trade, and was done by a trend
analysis of all stocks for forty days, using formulas by Markowitz and Wilder.

TABLE OF CONTENTS

Abstract

Scientific Report: Persistency

Introduction

Materials and Methods

Results

Summary

Scientific Report: Equity

Introduction

Materials and Methods

Results

Summary

List of Figures

Insights

Suggestions

Scientific Report (Persistency)

I.

Introduction
In order to maximize the profit and to ensure that benefit premiums are available and
not overflowing at the end or termination, a new set of persistency values would be computed.
The data needed would be taken from the database containing all policies that are active on the
year 2012 of First Life Co., Inc, both local and international policies. The study aims to
maximize the profit and minimize the over estimation of benefit reserves per policy year.
II.

Materials and Methods

Microsoft Excel
The raw policy database, containing necessary personal (name, birth date), and
account information (policy number, insurance type, status code, premium
amount, issue date and due date, mode of payment, beneficiary, plan code) of
all policyholders for the year 2012 was given, together with the list of plan
codes with their corresponding plan names.

The raw database was filtered. Policies which status codes given below are
excluded:
o CANC Cancelled
o CONV Converted
o DTH A/D/P/S Death
o NTU Not Taken Up
o WPPA Withdrawal
The following are the necessary account information needed for the
computation. The filtered database is shown in Figure 1.
o Policy Number
o Currency (PHP, USD)
o Plan Code
o Start Date
o STS Code
o Due Date
o Mode of Payment
o Premium
o Pay period of policy
The earliest policies were bought at year 1989 and would terminate at year
2012. So, year of valuation for the entire duration would be 23 years. As shown
in Figure 2, under year 1. If start year of policy plus year of valuation is less
than or equal to the end year, the premium paid would be recorded as income,
while if start year of policy plus year of valuation is greater than end year, no
premium would be recorded since the contract is already terminated.
The exposure is computed by summing all fixed annual premiums paid for the
specified n-pay plan, regardless of termination of contract, while the inforce is
1

computed by summing all fixed annual premiums paid on the year of valuation
itself, taking into consideration the termination of contract.
o For the exposure of 5-pay for the year 2010, third year of valuation (3),
sum all premiums with 5-pay as plan codes, where the start year of
policy is equal to 2010- 3-1. The subtrahend 1 is a constant for all
exposure formulas.
o For the inforce of 5-pay for the year 2010, third year of valuation (3),
sum all premiums under the third year of valuation with 5-pay as plan
codes, where the start year of policy is equal to 2010-3-1.
Another sheets for the summary of experienced persistency values is created,
each sheet corresponding to each n-pay plan code. For this database, we have
single pay (1-pay), 5-pay, 10-pay, etc. The persistency is computed by
inforce/exposure, and the average of the values for all n-pay for all policies are
taken, which would be compared to the current persistency.

The current persistency values are also included in the database. The plan codes
are sorted by n-pay. The most common persistency pattern found for all plan
codes would be the one compared to the experienced persistency.
The current persistency values were taken under linear interpolation and
exponential interpolation, where the two points are (1, initial persistency) and
(n-pay, final persistency). Since the goal is to have the values closer to the
experienced values, the user would be given the choice to input the desired
initial and final values.
III.

Results

Figure 3 shows the results of the experienced values for the 5-pay plan codes for the
year 2012. The years would extend up to 2003 to ensure more than five years of historical data
are studied. Figure 4 shows the found values after taking the average of 5-years of experienced
persistency. Figure 5 shows the sorted plan codes by n-pay.
IV.

Summary

On average of the experienced persistency values, a 10% initial persistency was found,
which is too far for the 20% current persistency value. In order to meet ends, the middle, 15%,
was the value decided to be recommended to the Chief Actuary, since the 15% value array was
close enough to the 10%, in comparison to the current 20%.

Scientific Paper (Equity)

I.

Introduction
In order to maximize profit by minimizing cost on undervalued stocks and investing a
an amount of money on rising stocks, a tabular schedule of the purchase time of
Philippine Stock Exchange Inc., (PSEI) stocks and selling time of First Life stocks
would be proposed. An optimal schedule would be obtained to ensure profitability of
the trade, by analyzing stocks for an average of forty days in the methods of Markowitz
and Wilder.

II.

Materials and Methods

Microsoft Excel
Summary of owned stocks of First Life
o Company name
o Number of shares
o Cost per share
o Total cost
PSEI website

Create two workbooks, one for stocks to buy and one for stocks to sell. Create
a sheet for each stock, and rename it by the stock code (found at PSEI website)
In Microsoft Excel,
o Merge cells A1 until M1, input company name.
o Merge cells A3 and A4, input Date; B3 and B4, Time (t), C3 and
C4, Stock Price (St); D3 and D4, Return; H3 and H4, Advance;
I3 and I4, Decline.
o Merge F2 and G2, K2 and L2, input Exponential Moving Average.
o Merge H2 and I2, input Relative Strength Index.
o On F3, 12-day, on G3, 26-day. On K3, 14-day Advance, on L3,
14-day Decline.
o On M4, input RSI.
The values below represent k for the whole column.
o On F4, =2/(VALUE(LEFT(F3,2))+1),
o On G4, =2/(VALUE(LEFT(G3,2))+1)
o On K4, =2/(VALUE(LEFT(K3,2))+1)
o On L4, =2/(VALUE(LEFT(L3,2))+1)
Go to the PSEI website and input corresponding dates, time and stock prices.
Simply input the company code in the search tool of PSEI, go to the Historical
Data tab, and copy stocks under the close column.
Returns are computed as S(t)/S(t-1).
The Exponential Moving Average (EMA) is computed as ((S(t)-EMA(t1))*k)+EMA(t-1). Do these for columns F, G, K, and L. Initial EMA for F and

III.

G is the stock price at time 1, while for K and L, RSI for Advance and Decline
at time 2, respectively.
The Relative Strength Index for Advance simply measures the increase of stock
price, while Relative Strength Index for Decline measures decrease of stock
price. If stock price increased, RSI for Decline has no value, and vice versa.
1
The RSI at Column M has the formula RSI (t)=1 ().
1+

()

Create another sheet for Fibonacci Retracements. Compute Target Price, stopgain and stop-loss. Use 0%, 23.6%, 38.2%, 50%, 61.8%, 75% and 100% as
targets.
Graph the Stock Price, EMA for 12-day and 26-day against time. Place the
Fibonacci Retracements as guidelines along the x-axis.
For the tabular schedule, get the last recorded RSI of all stocks to be bought,
arrange it in ascending order. Get the last recorded RSI of all stocks to be sold,
arrange it in descending order. Do these in another sheet. Assuming that the
cost of all sold stocks would be equal to your buying cost, its easier to buy and
sell simultaneously.

Results
Figure 7 shows some of the results of the Universal Robina Corporation (URC) stock
trend. The fact that the 12-day EMA trend is higher than the 26-day EMA trend
signifies the stock performs better on a short-term basis than long term. Normally, RSI
at time 1 and 2 would not exist. The graph would also help the user to monitor the stock
trend in an easier manner. The graph of URC is shown at Figure 8.
The results of the proposed tabular schedule are on Figure 9. Note that the Relative
Strength Index is prone to changes every day, so the order of the stocks would change.
Simply relate the cells to each other to ease this problem.

IV.

Summary
Wilders development of the Relative Strength Index made it easier for a stock watcher
to monitor the stock trend. It is a criteria that proved itself useful over the years.

LIST OF FIGURES
NUM CUR
3 PHP
4 PHP
8 PHP
10 PHP
16 PHP
20 PHP
24 PHP
28 PHP
38 PHP

CODE
1850
1200
1850
1989
2600
1200
2600
1850
1200

POLDTE STSCODE
9-May-89 LAPSED
16-May-89 PUP
23-May-89 PPP
23-May-89 PUP
27-Jun-89 PPP
11-Jul-89 PUP
19-Aug-89 PPP
15-Sep-89 PPP
25-Sep-89 LAPSED

POL ANIV POLFRQ PREMIUM ann_prem_if pay period P_year e_year

9-May-03
2
4487.81
0.00
0 1989 2002
16-May-10
1
3761.09
3,761.09
20 1989 2009
23-May-13
1
605.85
0.00
0 1989 2012
23-May-13
1
132300
132,300.00
99 1989 2012
27-Jun-13
1
1409.1
0.00
0 1989 2012
11-Jul-09
1
3562.65
3,562.65
20 1989 2008
19-Aug-12
1
665.28
0.00
0 1989 2011
15-Sep-11
1
25347
0.00
0 1989 2010
25-Sep-02
2
10080
20,160.00
20 1989 2001

Figure 1. Filtered 2012 database primarily used throughout the computation of qx

NUM P_year e_year

3
1989 2002
4
1989 2009
8
1989 2012
10
1989 2012
16
1989 2012
20
1989 2008
24
1989 2011
28
1989 2010
38
1989 2001

0.00
0.00
0.00
0.00
0.00
3,761.09
3,761.09
3,761.09
3,761.09
3,761.09
0.00
0.00
0.00
0.00
0.00
132,300.00 132,300.00 132,300.00 132,300.00 132,300.00
0.00
0.00
0.00
0.00
0.00
3,562.65
3,562.65
3,562.65
3,562.65
3,562.65
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
20,160.00 20,160.00 20,160.00 20,160.00 20,160.00

Figure 2. Summary of received premiums per year

Persistency (5-Pay)
Exposure
2010
2009
Inforce
2010
2009
Persistency
2010
2009

1
8517382
15135102
1
7786013
15032188
1
91.41%
99.32%

2
15135102
13603346
2
15001169
13155165
2
99.79%
99.70%

3
13603346
7460492
3
13009001
6782981
3
98.89%
99.54%

Figure 3. Experienced persistency results for all 5-pay plan codes

95.2%
4.8%

99.5%
0.5%

Figure 4. The resulting qx for 5-pay plan codes

h-pay

Plan Code

1205, 1206, 2520, 2620, 2882

20.00 9.00 4.00 3.00

1995, 1996

19.67 8.95 4.00 3.00

2105

12.00 8.00 4.00 3.00

2125, 2135, 2165, 2175

2127, 2157, 2167, 2207

19.67 8.95 4.00 3.00

15.00 7.50 5.00 2.50

1102

19.67 8.95 4.00 3.00

1201, 1202, 1960, 1965, 1999,

2060, 2065, 2120, 2220, 2883

20.00 9.00 4.00 3.00

1997, 1998
2202
3100, 3101

19.67 8.95 4.00 3.00

12.00 8.00 4.00 3.00
20.00 15.00 15.00 12.00

15-pay

1915, 1916

20.00 9.00 4.00 3.00

20-pay

2200

20.00 9.00 4.00 3.00

1900, 1901, 1990, 1992

20.00 9.00 4.00 3.00

1989

19.67 8.95 4.00 3.00

5 - pay

7-pay

10-pay

99-pay

Figure 5. Current plan codes sorted through n-pay

lin15
x
1
2
3
4
5
6

5
15.00
11.50
8.00
4.50
1.00

7
15.00
12.67
10.33
8.00
5.67
3.33

y
10
15
15.00 15.00
13.44 14.00
11.89 13.00
10.33 12.00
8.78 11.00
7.22 10.00

20
15.00
14.26
13.53
12.79
12.05
11.32

99
15.00
14.86
14.71
14.57
14.43
14.29

Input Initial Persistency:

Input Final Persistency:
x1
5
7
10

15.00
1.00

y1
x2
y2
1.00 15.00 5.00 1.00
1.00 15.00 7.00 1.00
1.00 15.00 10.00 1.00

Figure 6. Results of the linear interpolation for a 15% initial persistency

Date
4-Mar-13
5-Mar-13
6-Mar-13
7-Mar-13
8-Mar-13

Time (t) Stock Price (St) Return

1
2
3
4
5

PHP 93.95
PHP 96.50
PHP 97.50
PHP 96.00
PHP 97.00

0.02678
0.010309
-0.0155
0.010363

k=

Exponential Moving Average

12-day
26-day
0.153846154
0.074074074
PHP 93.95
PHP 94.34
PHP 94.83
PHP 95.01
PHP 95.31

PHP 93.95
PHP 94.14
PHP 94.39
PHP 94.51
PHP 94.69

Relative Strength Index

Advance

Decline

PHP 2.55
PHP 1.00
PHP 0.00
PHP 1.00

PHP 0.00
PHP 0.00
PHP 1.50
PHP 0.00

Exponential Moving Average

14-day Advance 14-day Decline
k= 0.133333333
0.133333333

PHP 2.55
PHP 2.34
PHP 2.03
PHP 1.89

Figure 7. Monitoring stocks of the Universal Robina Corporation

Figure 8. Graph of URC stocks

Buy
Sell
RSI
RSI
37.03% FGEN loss>gain 69.94% OPMB gain>loss
37.66% EDC
loss>gain 62.98% GLO
gain>loss
57.50% PGOLD gain>loss 62.03% SMC2C gain>loss

Figure 9. The tabular schedule of buying and selling of stock

PHP 0.00
PHP 0.00
PHP 0.20
PHP 0.17

RSI

#DIV/0!
#DIV/0!
91.03%
91.61%

Insights
Its worthwhile to enumerate everything Ive learned from the company and the university
acquired skills I used, since needless to say, they are quite many.

Microsoft Excel hotkeys. Ive always been holding on to my mouse whenever I use
MS Excel until now, thanks to all the keyboard shortcuts Ive learned all the way,
which proved to save time. A lot.
Macro. Ive never been a fan of programming: I passed FORTRAN and Scilab with
lots of prayers and help from friends. But whoa, when I was faced with a
programming task (I even think Sir gave it to me on a learning purpose since he
knows I hate programming), I felt as if I was doing this for a very long time. My
mind accepted the alien codes and information: it even looked for more!
Admittedly, I enjoyed it. =D ganun pala ka-fun mag program.
Maximizing what you have. The boss wants this output. He gives you two inputs,
but you need five. You ask but he just smiles. Thus, its up to you on how to work
with the two in order to get the other three.
Punctuality. Lets face it: most professors in the university dont give much thought
to students who are late in their class (except for the first month, maybe), moreover
to students who are having so much fun maximizing the number of absences. One
cant really blame them, since its not worth the time noting down or reprimanding
every student who gets beyond the grace period. Because of that, students tend to
have the annoying ability to come to class late. Unfortunately, I brought that attitude
with me, but because of the biometrics machine, I was trained for six weeks to come
to the office earlier than usual, and Im hoping I can bring that with me in school.
Dressing up. The university doesnt care what you wear to class, as long as it still
covers the parts that need to be covered, and needless to say, I brought that attitude
with me. It took a greater deal of focus and stress to choose the correct blouse-jeanheels combination every night before going to bed.
A smile and a good morning. Once people get used to their daily routines at work,
they forget to wear a smile and greet everyone a good morning (except those at the
front desk). A fixed smile and a good morning for ten minutes from the front door
up to your office wont hurt, and its satisfying to put a smile on their face before
they face their jobs. Hindi ako ganun sa elbi (sa dami ng tao) but still, its worth it.
Work Fast. Faster! The boss sets a timeframe for deadlines, and as of your current
pace, he seems to go along with it well. Still, one cant shake off the nagging feeling
that you still have to work faster, and when you do, youll see a satisfied expression,
as if he expects you to finish it at an earlier time.
Speak English. Its undeniable: the English training you get from the university,
whether you felt it or not, is very useful outside, especially when talking to the
bigger bosses: the Chief Actuary for example.

Suggestions

MS Excel and Macro. It would greatly benefit the student to take a subject
focused on exercises which would make the student be used to shortcuts when
it comes to Excel. Nothings wrong with FORTRAN and Scilab, but Macro is
easier to understand since the language is more humanely understandable, thus
giving the programmer the feel of actually talking to the computer. If this is
somewhat too small for a 3-unit course, maybe discussing a chapter of it in
laboratory programming courses would help the student for internship.
Show real actuarial world applications of useful theoretical topics. The
persistency I was given was simply a qx turned more complicated, but all the
same. The premium pricing task were done using formulas which can be found
in 171 and 172 notes. Future interns would have a faster grasp of the application
of key concepts in their tasks if their sense in real world problems are more
elaborately discussed. The cash flow shown in 172 helped a lot, since a cash
flow was the first excel file I was shown. It was amusing to understand the cash
flow after some analysis but hard to create a new qx even after a week, given
that a qx is simpler. Im not sure if a one-hour laboratory class for 171 and 172
would greatly help, but Im still suggesting it.
Stress the importance of actuarial exams. Passing the actuarial exams is an
undeniable need for an actuary to reach ultimate success. For three years in the
BSAM course, nobody from my classmates felt the need to take even one exam
before graduating, or some did but wasnt fully decided on it. AS students from
other countries are required to be an associate actuary before graduation, while
its known that students from Ateneo and UST produced graduates with
actuarial exams. Theres a chance to further enhance the quality of actuarial
science graduates of UPLB if they would really feel the necessity to take exams
in college.