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Manual For SOA Exam MLC.: Chapter 6. Benefit Premiums Actuarial Problems
Manual For SOA Exam MLC.: Chapter 6. Benefit Premiums Actuarial Problems
2009.
c Miguel A. Arcones. All rights reserved.
Extract from:
”Arcones’ Manual for SOA Exam MLC. Fall 2010 Edition”,
available at http://www.actexmadriver.com/
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
Hence,
(100000)A35 + (275)ä35 (100000)P35 + 275 836 + 275
G= = =
(1 − 0.1)ä35 0.9 0.9
=1234.444444.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
k bk+1
0 1000
1 500
2 250
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
2009.
c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
2009.
c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
Hence
(1000)A45 = 1000P45 ä45:15| + π · 15 E45 ä60:15|
becomes
(1000)(0.20120) = (1000)(0.01425726859)(9.956804228)
+ π(0.3728300028)(9.160834544).
So,
(1000)(0.20120) − (1000)(0.01425726859)(9.956804228)
π=
(0.3728300028)(9.160834544)
=17.34572191.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
Hence,
668 − (1000)v
px =
(1000)v 2 − (1000)v − (258)v
668 − (1000)(0.94)
= = 0.9099424595.
(1000)(0.94)2 − (1258)(0.94)
So,
668 + 258vpx 668 + 258(0.94)(0.9099424595)
Px:2| = = = 478.9830508.
1 + vpx 1 + (0.94)(0.9099424595)
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
2009.
c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
(#29, Exam M, Fall 2005) For a fully discrete whole life insurance
of 1000 on (60), you are given:
(i) The expenses, payable at the beginning of the year, are:
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
0 Le
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
We have that
1
A50 = a = 0.3651185092,
50 50|0.05
1 − A50 1 − 0.3651185092
ä50 = = 0.05
= 13.33251131.
d 1.05
Hence,
(1050)A50 + ä50 + 15
G=
ä50
(1050)(0.3651185092) + 15 + 13.33251131
= = 30.87992475.
13.33251131
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
and
(100000)5 E40 A45
P= .
ä40:5| − (IA)140:5|
From the illustrative life table,
Hence,
(100000)(0.73529)(0.20120)
P= = 3362.514491.
4.440113991 − 0.04042
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
2009.
c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
Since there are 1000 participants, the initial balance of the fund is
2158.747197. The amount in the fund at the end of the first year is
Since the expected size of the fund is zero, the difference is 900. 21/90
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
(#18, Exam M, Fall 2006) For a special fully discrete 20–year term
insurance on (30):
(i) The death benefit is 1000 during the first ten years and 2000
during the next ten years.
(ii) The benefit premium, determined by the equivalence principle,
is π for each of the first ten years and 2π for each of the next ten
years.
(iii) ä30:20| = 15.0364
(iv)
x äx:10 1000A1x:10|
30 8.7201 16.66
40 8.6602 32.61
Calculate π
(A) 2.9 (B) 3.0 (C) 3.1 (D) 3.2 (E) 3.3
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
Since
15.0364−8.7201
we get that 10 E30 = 8.6602 = 0.729348052. Hence,
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
16 π 2
= Var(L0 ) = Var(Z x ) 1 + .
45 δ
Hence,
2
0.1 + 0.05 2
1 2
9 5 Var(L) δ + P(Ax ) 0.15
= 16 = = = =
16 45
Var(L0 ) δ+π 0.1 + π 0.1 + π
3 0.15
So, 4 = 0.1+π and π = 0.1. 25/90
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
(#4, Exam MLC, Fall 2007) For a fully discrete whole life
insurance of 150,000 on (x), you are given:
(i) 2 Ax = 0.0143
(ii) Ax = 0.0653
(iii) The annual premium is determined using the equivalence
principle.
(iv) L is the loss–at–issue random variable.
Calculate the standard deviation of L.
(A) 14,000 (B) 14,500 (C) 15,100 (D) 15,600 (E)
16,100
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Chapter 6. Benefit premiums. Actuarial problems.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
Year 1 Years 2+
% of premium Constant % of premium Constant
Taxes 4% 0 4% 0
Sales Commission 25% 0 5% 0
Policy maintenance 0% 10 0% 5
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
2009.
c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
µ
Solution 1: We know that 0.20 = µ+2δ and 0.03 = µ. Hence,
δ = 0.06. We have that
µ 1
Ax = = ,
µ+δ 3
2A − A 0.20 − (1/3)2
x x
Var(0 L) = = = 0.2.
(1 − Ax )2 (1 − (1/3))2
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
1 − 0.24905
E [Lx ] = Ax − πäx = 0.24905 − (0.025) = −0.08261958333
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E [LAggreg ] = −0.08261958333n,
0.025 2 2
Var(Lx ) = 1 + ( Ax − A2x )
d
0.025 2
= 1+ (0.09476 − (0.24905)2 ) = 0.06803463917,
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Var(LAggreg ) = n(0.06803463917)
We have that p
0 = −0.08261958333n + (1.645) n(0.06803463917). So,
(1.645)2 (0.06803463917)
n= = 26.97092799.
(0.08261958333)2
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Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
Hence,
1000v − 608
px = = 0.9,
1350v − 1000v 2
608 + 350vpx 608 + 350(0.95)(0.9)
π= = = 489.083558.
1 + vpx 1 + (0.95)(0.9)
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
0L = v T − P(Ax )aT ,
E = c0 + (g − e)aT
c0 = initial expenses
g = 0.0030, is the annual rate of continuous maintenance expense;
e = 0.0066, is the annual expense loading in the premium.
Calculate Var(0 Le ).
(A) 0.208 (B) 0.217 (C) 0.308 (D) 0.434 (E) 0.472
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Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
π π
(105 )Z 5
(C) We have that L = x − π Ÿx = 10 + d Zx − d . So,
2
E [L] = (105 )Ax − πäx and Var(L) = 105 + πd Var(Zx ). For
10000 lives,
π 2
E [LAggr ] = (10)4 ((105 )Ax −πäx ), Var(LAggr ) = (10)4 105 + Var(Zx )
d
π is the solution of
πp
0 = (10)4 ((105 )Ax − πäx ) + (2.326)(10)2 105 + Var(Zx ).
d
So,
p
(107 )Ax + (2.326)105 Var(Zx )
π= √
(2.326) Var(Zx )
100äx − d
√
(10 )(0.36913) + (2.326)105 0.17741 − 0.369132
7
= √
2
= 3379.563104.
100(11.1454) − (2.326) 0.17741−0.36913
6/106
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
Hence,
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
µ 4 1 µ 4 1
Ax = = = , 2 Ax = = = ,
µ+δ 12 3 µ + 2δ 20 5
2 A − (A )2 1 1 4
x x 5 − 9 45 1
Var(L(Ax )) = = = 4 = .
(1 − Ax )2 1 2 5
1− 3 9
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Chapter 6. Benefit premiums. Actuarial problems.
k 1 2 3
k px 0.99 0.98 0.97
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Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
Hence,
(1000)(0.102)
π= = 15.02430402.
7.747 − 0.078 − (10)(0.088)
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Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
(A) Pat dies 2.5 years after issue of the contract. Hence,
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Chapter 6. Benefit premiums. Actuarial problems.
k qx+k
0 0.200
1 0.100
2 0.097
(iii) i = 0.06
Calculate the level annual benefit premium for this insurance.
(A) 518 (B) 549 (C) 638 (D) 732 (E) 799
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Chapter 6. Benefit premiums. Actuarial problems.
(A)
R ∞ The actuarial present value of the death benefits is
t t
0 (1 + i) v fT (x) (t) dt dt = 1. Let P be the rate of benefit
premiums. The actuarial present value of the benefit premiums is
Pax . Hence, P = a1x and the loss is
1 1 1 − vT 1 − vT v T − Ax
1− Yx = 1− =1− = .
ax ax δ 1 − Ax 1 − Ax
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Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
P{K30 ≥ 49} = P{T30 ≥ 48} < 0.5 < P{T30 ≥ 47} = P{K30 ≥ 48}
and P{K30 < 48} < 0.5 < P{K30 < 49}. We have that
π 0 = s̈10000 = 36.77032951.
48|0.06
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Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
Ax 1 − ax δ 1 − (5)(0.08)
π= = = = 0.12, π ∗ = (1.25)π = 0.15,
ax ax 5
E [L∗ ] = Ax − (1.25)πax = −(0.25)πax = −(0.25)(0.12)(5) = −0.15,
∗ 2 0.15 2
π∗ 2 1 + πδ
∗ 1 + 0.08
Var(L ) = Var(Z x ) 1 + = Var(L) 2 = 0.5625 2
δ 1 + πδ 1 + 0.12
0.08
p √ 1 + 0.15
0.08
Var(L∗ ) = 0.5625 = 0.8625,
1 + 0.12
0.08
E [L∗ ] + Var(L∗ ) = −0.15 + 0.7744565217 = 0.7125.
p
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Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
(C) The minimum loss is attained if Pat dies after paying all
benefit premiums, but before the death benefit is made. The
minimum loss is
− 1600ä10| = −12972.51468.
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Chapter 6. Benefit premiums. Actuarial problems.
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c Miguel A. Arcones. All rights reserved. Manual for SOA Exam MLC.
Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
Hence,
(25000)(0.4058) + (12.5)(12.522) + 37.5
G= = 883.9871237.
(12.522)(1 − 0.05) − 0.20
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Chapter 6. Benefit premiums. Actuarial problems.
Hence,
(25000)(0.4058) + (15.5)(12.522) + 37.5 + 12
G= = 888.225019.
(12.522)(1 − 0.05) − 0.20
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Chapter 6. Benefit premiums. Actuarial problems.
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Chapter 6. Benefit premiums. Actuarial problems.
(ii) i = 0.04
(iii) äx = 10.8
(iv) Per policy expenses are matched by a level policy fee to be
paid in each year.
Calculate the expense-loaded premium using the equivalence
principle.
(A) 5800 (B) 5930 (C) 6010 (D) 6120 (E) 6270
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Chapter 6. Benefit premiums. Actuarial problems.
Hence
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Chapter 6. Benefit premiums. Actuarial problems.
Hence,
1000 10 |20 A30 + 10 + 10ä30:10| 1000 10 |20 A30 + 20 + 10a30:9|
G= = .
0.85ä30:5| − 0.15 0.85ä30:5| − 0.15
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Chapter 6. Benefit premiums. Actuarial problems.
b1 = 3000, b2 = 2000
(ii) The maturity benefit is 1000.
(iii) Expenses, payable at the beginning of the year:
(a) Taxes are 2% of the expense-loaded premium.
(b) Commissions are 3% of the expense-loaded premium.
(c) Other expenses are 15 in the first year and 2 in the second
year.
(iv) i = 0.04
(v) px = 0.9 px+1 = 0.8
Calculate the expense-loaded premium using the equivalence
principle.
(A) 670 (B) 940 (C) 1000 (D) 1300 (E) 1370
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