Winter term 2020/21 Sheet 10

Dr. Stefan Schelling

Dr. Manuel Rach

Exercises in Life-, Health- and Pension-Mathematics

Exercise 10.1 (Reserves endowment insurance contract)

Let us consider an endowment insurance contract for a male person aged 40 with sum insured
100 000 A
C, a contract duration of 27 years, annual premium payments and the following cost
structure:

• α = 25 ‰ of the sum of paid premiums (up-front),

• β = 6% of the gross-premium (regular, annually),

• γ = 3. 5 ‰ of the sum insured (regular, annually).

(a) Determine the net- and gross-premiums as well as the regular and distributed acquisi-
tion charges!

(b) Determine 1 V40 using the prospective method!

(c) Determine 13 V40 using the retrospective method!

(d) Determine 14 V40 using the recursive method!

(e) Give the decomposition of the premium at the beginning of the 14th year!

Exercise 10.2 (Net reserve life annuity)

Find a formula for the net reserve of a deferred life annuity-due due with constant benefits,
constant interest and constant annual premium during the deferment period. Consider both
the deferment period and the payment period.

Exercise 10.3 (Proofs from the lecture)

(a) Prove Proposition 9 from the lecture, i.e. show that


X 
m Vx (zm ) = v(m,t) · pm,t (zm ) · 
Lt (zm ) + Ct (zm ) − Pt (zm )
t≥m


X

+v(t,t + 1) · pt,t+1 (zm ,z) · Lt+1 (zm ,z) + t+1 Vx (z) 
z∈S
z6=zm

(b) Prove Theorem 3 from the lecture, i.e.

 • show:


+ Pm (zm ) − Lm (zm ) − Cm (zm ) (1 + im+1 )
m Vx (zm )
X

= pm,m+1 (zm ,z) Lm+1 (zm ,z) + m+1 Vx (z)
z∈S

1
with 1 + im+1 = .
v(m,m + 1)
• show:
 
X Lm+1 (zm ,z) m+1 Vx (z)
Pm (zm ) = Lm (zm ) + Cm (zm ) + pm,m+1 (zm ,z) · + − V (zm )
z∈S
1 + im+1 1 + im+1 m x
X Lm+1 (zm ,z) + m+1 Vx (z) − m+1 Vx (zm )
= pm,m+1 (zm ,z) ·
z∈S
1 + im+1
z6=zm
 
m+1 Vx (zm )
+ − m Vx (zm ) + Lm (zm ) + Cm (zm )
1 + im+1

(c) Consider a general life insurance contract (not a general multi-state model). Prove
Proposition 10 from the lecture, i.e. show the following:
m−1 m−1
!
1 X X
m Vx = 0 Vx + vk · k px (Pk − Rk − Ck ) − vk+1 · k px · qx+k · Tk+1
vm · m px k=0 k=0

Hint: Use the one-year recursive formula for life insurance contracts and induction.
Solution 10.1
We use DAV 2008T(M) for an endowment insurance contract.

(a) With a sum-insured of S = 100 000 AC , initial age x = 40 , contract duration n = 27 ,

N
we can use P äx:n = S · Ax:n to obtain the net premium:

S · Ax:n
PN = = 3 466. 09 A
C.
äx:n

Including charges we have that

P a äx:n = S · Ax:n + αnP a + βP a äx:n + γS äx:n .

Hence, we get a gross premium P a = 4 190. 82 A C , regular charges C regular = 601. 45 A

C
and distributed acquisition charges of 123. 28 A
C.

(b) Prospective reserve:

1 V40 = S · A41:26 + C regular · ä41:26 − P a · ä41:26 = 638. 41 A
C
where
M41 − M67 + D67
A41:26 = = 0. 80223 ,
D41
N41 − N67
ä41:26 = = 22. 1723 .
D41

(c) Retrospective reserve:

1
+ P a · ä40:13 − S · |13 A40 − C regular · ä40:13 = 43 758. 33 A


13 V40 = · 0 V40 C,
v 13 · 13 p40

where
D53
v 13 · 13 p40 = = 0. 858187 ,
D40
N40 − N53
ä40:13 = = 12. 1756 ,
D40
M40 − M53
|13 A40 = = 0. 033211 .
D40

(d) Recursive formulation:

(1 − qx+m−1 ) · m Vx = (m−1 Vx + Pm−1 − Cm−1 − Rm−1 ) · (1 + im ) − Tm · qx+m−1

(1 − q53 ) · 14 V40 = (13 V40 + P a − C regular ) · (1 + i) − S · q53

1 h i
⇒ 14 V40 = · (13 V40 + P a − C regular ) · (1 + i) − S · q53
1 − q53
= 47 495. 14 A
C
 (e) Premium decomposition at the beginning of the 14th year ( m = 13 )
h Tm+1 − m+1 Vx i h m+1 Vx i
Pma = qx+m · + − m Vx + Rm + C regular
1+i 1 + im+1
| {z m+1 } | {z }
RP (risk premium) SP (savings)

Risk-premium ( Tm+1 = S , im+1 = i ):

S − 14 V40
RP = q53 · = 0. 005308 · 52 036. 5337 = 276. 21 A
C.
1+i
Savings ( Rm = 0 , im+1 = i ):
V
SP = 14 40 − 13 V40 = 3 313. 16 A C.
1+i
Charges (annual):
C regular = 601. 45 A
C.

Solution 10.2
Deferred life annuity-due: deferment period of length n (years).

• payout period (m ≥ n) :
N
m Vx = R · äx+m
• deferment period (0 ≤ m < n) :
N
m Vx = R · n−m| äx+m − P N · äx+m:n−m .

Solution 10.3 We use the recursions derived on sheet 8.

(a)
= AP Vmbenefits (zm ) + AP Vmcharges (zm ) − AP Vmpremiums (zm )
m Vx (zm )
 
X X
benefits


= v(m,t) pm,t (zm ) Lt (zm ) + v(t,t + 1) pt,t+1 (zm ,z) Lt+1 (zm ,z) + AP Vt+1 (z) 

t≥m z∈S
z6=zm
 
X X charges
+ v(m,t) pm,t (zm ) Ct (zm ) + v(t,t + 1) pt,t+1 (zm ,z) AP Vt+1 (z)
 
t≥m z∈S
z6=zm
 
X X premiums
− v(m,t) pm,t (zm ) Pt (zm ) + v(t,t + 1) pt,t+1 (zm ,z) AP Vt+1 (z)
 
t≥m z∈S
z6=zm

X  X
= v(m,t) pm,t (zm ) 
 Lt (zm ) + C t (zm ) − P t (zm ) + v(t,t + 1) pt,t+1 (zm ,z) ·
t≥m z∈S
z6=zm


charges premiums
benefits


· Lt+1 (zm ,z) + AP Vt+1 (z) + AP Vt+1 (z) − AP Vt+1 (z) 
| {z } 
t+1 Vx (z)
(b) • We obtain the following:

m Vx (zm ) = AP Vmbenefits (zm ) + AP Vmcharges (zm ) − AP Vmpremiums (zm )

Lemma
X
benefits


= Lm (zm ) + v(m,m + 1) · pm,m+1 (zm ,z) · Lm+1 (zm ,z) + AP Vm+1 (z)
z∈S
X charges
+ Cm (zm ) + v(m,m + 1) · pm,m+1 (zm ,z) · AP Vm+1 (z)
z∈S
!
X premiums
− Pm (zm ) + v(m,m + 1) · pm,m+1 (zm ,z) · AP Vm+1 (z)
z∈S
X
= Lm (zm ) + Cm (zm ) − Pm (zm ) + v(m,m + 1) · pm,m+1 (zm ,z)·
z∈S
benefits charges premiums


· Lm+1 (zm ,z) + AP Vm+1 (z) + AP Vm+1 (z) − AP Vm+1 (z)
| {z }
m+1 Vx (z)

• The first equality can be obtained directly by rearranging the one-year recursive
formula above and by noting that
X X
pm,m+1 (zm ,z) = 1 ⇒ m Vx (zm ) = pm,m+1 (zm ,z) · m Vx (zm ) .
z∈S z∈S

The second equalityXcan be obtained by noting that Lm+1 (zm ,zm ) = 0 and
pm,m+1 (zm ) = 1 − pm,m+1 (zm ,z) :
z∈S
z6=zm

X Lm+1 (zm ,z) + m+1 Vx (z)

Pm (zm ) = Lm (zm ) + Cm (zm ) − m Vx (zm ) + pm,m+1 (zm ,z) ·
z∈S
1 + im+1
X Lm+1 (zm ,z) + m+1 Vx (z)
= Lm (zm ) + Cm (zm ) − m Vx (zm ) + pm,m+1 (zm ,z) ·
z∈S
1 + im+1
z6=zm

m+1 Vx (zm )
+ pm,m+1 (zm ,zm ) ·
1 + im+1
X Lm+1 (zm ,z) + m+1 Vx (z) − m+1 Vx (zm )
= pm,m+1 (zm ,z) ·
z∈S
1 + im+1
z6=zm
 
m+1 Vx (zm )
+ − m Vx (zm ) + Lm (zm ) + Cm (zm )
1 + im+1

(c) We prove the retrospective reserve formula via induction. For m = 0 , we obtain
0 Vx = 0 Vx . Next, we want to show:

m m
!
1 X X
m+1 Vx = 0 Vx + vk · k px (Pk − Rk − Ck ) − vk+1 · k px · qx+k · Tk+1
vm+1 · m+1 px k=0 k=0

under the assumption that the retrospective formula already holds for m . From the
one-year recursive formula and the induction, we get

px+m · m+1 Vx = (m Vx + Pm − Cm − Rm )(1 + im+1 ) − qx+m · Tm+1

m−1 m−1
! !
1 X X
= 0 Vx + vk · k px (Pk − Rk − Ck ) − vk+1 · k px · qx+k · Tk+1 + Pm − Cm − Rm
vm · m px k=0 k=0
· (1 + im+1 ) − qx+m Tm+1
m m−1
!
1 X X
= 0 Vx + vk · k px (Pk − Rk − Ck ) − vk+1 · k px · qx+k · Tk+1 − qx+m Tm+1
vm+1 · m px k=0 k=0
m m
!
1 X X
= 0 Vx + vk · k px (Pk − Rk − Ck ) − vk+1 · k px · qx+k · Tk+1
vm+1 · m px k=0 k=0

Dividing both sides by px+m and noticing that m px · px+m = m+1 px completes the
proof.