We've updated our privacy policy. Click here to review the details. Tap here to review the details.

Successfully reported this slideshow.

Your SlideShare is downloading.
×

Activate your 30 day free trial to unlock unlimited reading.

Activate your 30 day free trial to continue reading.

Top clipped slide

1 of 15
Ad

Download to read offline

this includes the step-by-step approach to discussing the pricing plans in insurance.

this includes the step-by-step approach to discussing the pricing plans in insurance.

- 1. Company LOGO Life and Health Insurance Pricing Fundamentals Chapter 2 and 27~29 Part II
- 2. Ch2 Part 2 Agenda Factors/information needed for life insurance pricing Assumptions needed for pricing Pricing examples 1. Renewable one-year term Life Insurance 2. Single premium whole life 3. Single premium immediate annuity
- 3. Factors/information Needed to Compute Life Insurance Premium Rates 1. Premium plan: single premium, limited pay, or continuous pay. Frequency 2. Death Benefit features 3. Age of the Insured 4. Gender of the Insured (not permitted in Montana) 5. Others, e.g., health condition, smoking/non- smoking, occupations, hobby Note: some factors are prohibited: e.g., race
- 4. Assumptions Needed to Compute Life Insurance Premium Rates Assumptions: the estimations about the future, may or may not actually come true. 1. Mortality rate Mortality Table, usually gender-based (e.g., CSO, AMT, Select, Ultimate, valuation, smoker or nonsmoker, etc.) 2. Interest Rate 3. Expenses loading 4. Profit loading (to meet the target profit level)
- 5. Pricing principle PV(E(net premium)) = PV(E(benefit)) PV(E(gross premium)) = PV(E(benefit))+PV(E(expense)) + PV(target profit) Note: PV: present value E: expected
- 6. Pricing example 1: Renewal annual premium for renewable one year term 330/1.05=314.29 385/1.05=366.67 480/1.05=457.14 658/1.05=626.67 1000/1.05=952.38 Assume DB paid at the end of year. Net Renewal annual premium (Per $1000 DB) Assume guarantee interest rate is 5% 0.33*1000 =330
- 7. Pricing example 2: whole life single premium Whole life insurance, sold to a 95 year old. DB=$1000. Premium paid at the beginning of the year Assume Interest rate=5% DB paid at the end of the year What is the net single premium?
- 8. Pricing example 2: whole life single premium year x q(x) expected value of DB 1 95 0.32996 2 96 0.38455 3 97 0.4802 4 98 0.65789 5 99 1 Step 1: what is the expected value of the DB each year?
- 9. Pricing example 2: whole life single premium time 0 1 2 3 4 5 age 95 96 97 98 99 100 year x q(x) expected value of DB 1 95 0.32996 1000*q(95)=329.960 2 96 0.38455 1000*(1-q(95))*q(96)=257.664 3 97 0.4802 1000*(1-q(95))*(1-q(96))*q(97) =198.023 4 98 0.65789 1000*(1-q(95))*(1-q(96))*(1- q(97))*q(98) =141.021 5 99 1 1000*(1-q(95))*(1-q(96))*(1-q(97))*(1- q(98))*q(99) =73.332 Step 1: what is the expected value of the DB each year?
- 10. Pricing example 2: whole life single premium time 0 1 2 3 4 5 E(DB) 329.96 257.664 198.023 141.021 73.332 𝑃𝑉 𝐸(𝐷𝐵) = 329.96 1.05 + 257.664 1.052 + 198.023 1.053 + 141.021 1.054 + 73.332 1.055 =892.49 Step 3: Single premium=PV(E(DB)) =892.49 Step 2: what is present value of the expected DB?
- 11. Pricing example 3: Single Premium Immediate Pure Life Annuities Find single net premium for a pure life annuity for a 96 year old, with $5,000 annual benefit Assume Interest rate = 10% Annuity paid at the end of each year Note: everyone dies by age 100 age Number of survivor 96 9831 97 6050 98 3145 99 1076 100 0
- 12. year Expected Payment=$5000 x prob. of surviving 1 2 3 4 Pricing example 3: Single Premium Immediate Pure Life Annuities Step 1: find out the expected annuity payment every year Time 0 1 2 3 4 Age 96 97 98 99 100
- 13. year Expected Payment=$5000 x prob. of surviving 1 5000*(6050/9831) =$3,077.001 2 5000*(3145/9831) =$1,599.532 3 5000*(1076/9831) =$547.25 4 5000*(0/9831)=0 Pricing example 3: Single Premium Immediate Pure Life Annuities Step 1: find out the expected annuity payment every year Time 0 1 2 3 4 Age 96 97 98 99 100
- 14. Pricing example 3: Single Premium Immediate Pure Life Annuities Step 2: find out the PV of the expected annuity payments Time 0 1 2 3 4 E(payment) $3077.001 $1599.532 $547.25 0 𝑃𝑉 𝐸(𝑝𝑎𝑦𝑚𝑒𝑛𝑡) = 3077.001 1.1 + 1599.532 1.12 + 547.25 1.13 + 0= $4,530.36 Step 3: Single premium=PV(E(annuity payment)) = $4,530.36
- 15. Gross premium If the profit and expense loading is, such as 50% of the net premium, then the gross premium=1.5*(net premium)

No public clipboards found for this slide

You just clipped your first slide!

Clipping is a handy way to collect important slides you want to go back to later. Now customize the name of a clipboard to store your clips.Hate ads?

Enjoy access to millions of presentations, documents, ebooks, audiobooks, magazines, and more **ad-free.**

The SlideShare family just got bigger. Enjoy access to millions of ebooks, audiobooks, magazines, and more from Scribd.

Cancel anytime.
Be the first to like this

Total views

7

On SlideShare

0

From Embeds

0

Number of Embeds

1

Unlimited Reading

Learn faster and smarter from top experts

Unlimited Downloading

Download to take your learnings offline and on the go

You also get free access to Scribd!

Instant access to millions of ebooks, audiobooks, magazines, podcasts and more.

Read and listen offline with any device.

Free access to premium services like Tuneln, Mubi and more.

We’ve updated our privacy policy so that we are compliant with changing global privacy regulations and to provide you with insight into the limited ways in which we use your data.

You can read the details below. By accepting, you agree to the updated privacy policy.

Thank you!

We've encountered a problem, please try again.