2024 Ias 353 Exam Cba

DEPARTMENT OF ACTUARIAL SCIENCE
SUBJECT: IAS353 – CONTINGENCIES

COMPUTER BASED ASSESSMENT
11 JUNE 2024
Time allowed: 1 hours and 30 minutes plus 15 minutes reading time

Max marks: 50 marks
Number of questions: 4
Number of pages: 3
Examiners: Regard Budler and Marli Venter
External Examiner: Frans Koning
Instructions to candidates:
1. Do not turn over this page until you are instructed to do so by the invigilator.
2. Attempt all the questions.
3. The mark allocation per question is shown in brackets.
4. Ensure that you label your questions and workings clearly using the Excel
template provided. Additional columns and calculations may be added to the
template where necessary.
5. Ensure that you save your work regularly and at the end of the paper that you
have successfully submitted our results to clickUP.
6. Make sure your student number is entered in the cover page and that your
Excel file is named as your correct student number only.
7. Hand in the exam paper.
Question 1 [12]
Consider a portfolio of 100 000 lives aged 60 exactly on which two decrements apply,
death (d) and withdrawal (w).
Independent probabilities of withdrawal apply according to the following formula:

𝑤 𝑥
𝑞𝑥,𝑡,𝑛 = 0.1 (100 + 0.1(𝑛 − 𝑡))
where x is age, n is the term of the contract and t is the duration, in complete years, from
the start of the contract. Withdrawals can occur at any time during the contract.
Independent probabilities of mortality follow AM92 ultimate mortality.
An insurer sells a 3-year decreasing endowment assurance to lives aged 60 with sum
assured R200 000 payable at the end of the year of death. This sum decreases by R40 000
in the second year and again in the third year. If the insured survives to the end of 3 years
a survival benefit of R80 000 is paid.
i) Set up a multiple decrement table showing q xw,t ,n , 𝜇𝑥𝑑 , 𝜇𝑥𝑤 , (al)x, (ad)xw, (aq)xw,
(ad)xd, (aq)xd for ages 60 to 63. [9]
ii) Using the rates in the table in (i), calculate the single premium for the above
contract, assuming a rate of interest of 4.5% [3]
Question 2 [12]
XYZ Insurance sold 30-year joint life endowment assurance policies to male and female
lives aged 35 and 32 exact respectively. The sum assured of R500 000 is payable at the end
of the year of the first death.
Make use of the mortality provided in the template to calculate the standard deviation of
this benefit, using 5% interest, and using select mortality where the 1-year select table
values can be calculated using the relationship 0.9𝑑𝑥 = 𝑑[𝑥] .
Question 3 [12]
A life insurance company sells a 20-year unit linked endowment assurance contract to male
lives aged 40 exact. Level annual premiums of R20 000 per annum are payable in advance.
50% of the premium is allocated to units in the first year and 98% in all other years. The
units are subject to a bid-offer spread of 5%. There is an annual management charge of
1% of the bid value of the units. Management charges are deducted at the end of each
year.
On maturity or the death of the policyholder during the term of the policy, there is a benefit
payable of R200 000, or the bid value of the units allocated to the policy, if greater. The
death benefit is paid on average 2 months after death. The maturity value is paid exactly
on maturity date.
The company uses the following other basis items in carrying out the profit tests of this
contract:
Independent rates of mortality: Per the provided mortality table

Initial expenses: R1 500
Renewal expenses: 2% of premium from the second year on
Growth on assets in the unit fund: 6% per annum
Interest on non-unit fund cash-flows: 4% per annum
Risk discount rate: 10% per annum.
i. Set up the Unit-Fund table to determine the final value paid after 20 years. [4]
ii. Set up the Non-Unit-Fund and calculate the net present value of this contract
assuming no reserves are held. [8]
Question 4 [14]
A life insurance company is developing a new life assurance product. The product is a 30-
year endowment assurance contract that will be sold to male lives aged 35 exact. Level
annual premiums are payable in advance. On the death of the policyholder a benefit of
R2 000 000 is paid at the end of the year of death, or on reaching maturity.
The company uses the following basis in carrying out profit tests of this contract:
Independent rates of mortality: Per the provided mortality table

Initial expenses: R1 000
Renewal expenses: 2% of premium from the second year on.
Interest on cash-flows: 4% per annum.
Risk discount rate: 10% per annum.
Profit margin: 10%
Reserves: net premium reserves
i. Calculate the net premium reserves at 6% interest that are held at the start of each
year using the mortality in the pricing basis. [6]
ii. Set up a profit test to determine the premium at a profit margin of 10% allowing for
the reserves as calculated in i. [8]
END OF PAPER

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DEPARTMENT OF ACTUARIAL SCIENCE

SUBJECT: IAS353 – CONTINGENCIES

Time allowed: 1 hours and 30 minutes plus 15 minutes reading time

Independent probabilities of withdrawal apply according to the following formula:

Independent probabilities of mortality follow AM92 ultimate mortality.

Independent rates of mortality: Per the provided mortality table

Independent rates of mortality: Per the provided mortality table

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