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A life insurance company issues a large number of 4-year equity-linked endowment insurance policies to lives aged 65 exact. Level premiums are payable annually in
A life insurance company issues a large number of 4-year equity-linked endowment insurance policies to lives aged 65 exact. Level premiums are payable annually in advance until maturity or earlier death. The company has performed a profit test on these policies and the profit vector per policy sold, ignoring surrenders, is as follows: (185.21,121.52,5.28,12.95) (i) Calculate the profit signature per policy sold if negative cash flows are zeroised. The company now wishes to allow for surrenders in its calculations. It assumes that at the end of the first and second policy years only, 3% of the surviving policyholders will surrender. Surrender values are equal to the policyholders' fund value (after deduction of the fund management charge) less a surrender penalty of $50. (ii) Calculate the revised profit signature per policy sold after allowing for surrenders if negative cash flows are zeroised. (iii) Calculate the net present value of the revised profit signature in part (ii), using a risk discount rate of 8% per annual. : Mortality: AM92 Ultimate Interest earned on insurer's fund: 5% per annual Expenses: Ignore
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