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Middle East Technical University Inst. of Applied Mathematics / Actuarial Sciences IAM582 / Life Insurance Mathematics Assoc. Prof.

Sevtap Kestel

Spring 2013

24/04/2013 ASSIGNMENT 5 DUE DATE: May 8, 9:40

1. A level Premium whole life insurance of 1, payable at the ed of the year of death, is issued

to (x). A premium of G is due at the beginning of each year, provided (x) survives. Given: (i) L= the insurers loss when G= Px (ii) (iii)
L* = the insurers loss when G is chosen such that E[ L* ]= -0,20 Var[L]= 0,30 Calculate Var[ L* ].

2. Given the following values calculated at d=0,08 for two whole life policies issued to (x): Death Benefit Policy A Policy B 4 6 Premium 0,18 0,22 Variance of Loss 3,25 3,25

Premiums are paid at the beginning of the year and the death benefits are paid at the end of the year. Calculate the variance of the loss for policy B. 3. Obtain an expression for the annual Premium n Px in terms of net single premiums and the rate

of discount d. ( n Px denotes the net annual premium payable for n years for a whole life insurance issued to x.)
4. Given:

(i) Ax = 0,25 (ii) Ax 20 = 0,40 Ax:20 = 0,55 (iii) (iv) i= 0,03 (v) assumption a applies Calculate 1000P( Ax:20 )
5. A fully-continuous level premium 10-year term insurance issued to (x) pays a benefit at

death of 1 plus the return of all premiums paid accumulated with interest. The interes rate used in calculating the death benefit is the same as that used to determine the present value of the insurers loss. Let G denote the rate of annual premium paid continuously. (a) Write an expression for the insurers loss random variable L (b) Derive an expression for Var[L] (c) Show that, if G is determined by the equivalence principle, then Var[L]= Ax:10 +
2 1

( A1 )2 x:10


The pre-superscript indicates that the symbol is evaluated at a force of interest of 2 , where is the force of interest underlying the usual symbols.

6. Given: (i) (ii)

Ax = 0,3 = 0,07 A whole life policy issued to (x) has a death benefit of 1000 paid at the moment of death. Premiums are paid twice per year. Calculate the semi-annual net premium using assumption a.

7. Given: (i) (ii) (iii)

Ax:n = 0,4275 = 0,055, and x t = 0,045, t 0

Calculate 1000 P( Ax:n ) . 8. Show that


d ax d Ax ) P( A x ) ( x) dx dx

9.An ordinary life contract for a unit amount on a fully discrete basis is issued to a person age x with an annual premium of 0.048. Assume d=0.06, Ax =0.4, Ax =0.2. Let L be the insurers loss function at issue of this policy. (a) Calculate E[L] (b) Calculate Var[L] (c) Consider a portfolio of 100 policies of this type with face amount given below Face Amount 1 4 Number of Policies 80 20

Assume the losses are independent and use a normal approximation to calculate the probability that the present value of gains for the portfolio will exceed 20. 10. An insurance issued to (35) with level premiums to age 65 provides (i)100000 in case the insured survives to age 65 (ii)The return of the annual contract premiums with interest at the valuation rate to the end of the year of death if the insured dies befoe age 65 If the annual contract premium G is 1.1 where is the annual benefit premium, write an expression for .