Question 1

Describe the main features of a unit-linked policy.

Explainthe terms 'unit fund' and 'non-unit fund' in the context of a unit-linked life assurance

contract, listing the various items that make up the non-unit fund.

A woman now aged exactly 64 has paid 20,000 a year into an accumulating with-profits contract

at the start of each of the last four years.

The policy has incurred the following charges:

1,000 deducted at the start of year 1

100 deducted at the start of each subsequent year.

The following rates of regular bonus interest have been applied:

Year t 1 2 3 4

Bonus interest t b 2.9% 3.1% 3.2% 3.4%

Additionally, there is a terminal bonus on contractual claim, currently payable at the rate of

0.015 of the fund value, where t is the number of years the policy has been in force at the

time of claim.

The policy is now maturing, and the woman is using all of the maturity proceeds to buy a level

annuity from the insurance company. The annuity will be payable monthly in advance for a

minimum of 5 years and for the whole of life thereafter.

Calculate the monthly amount of annuity that the woman will receive, if the insurance company

uses the following basis in its annuity pricing:

Mortality: PFA92C20 with a 3-year age deduction

Interest: 4% pa

Expenses: 400 initial plus 0.35% of each annuity payment.

A life insurance company issues five-year without profit endowment assurances for an annual premium of $3,600 and a sum assured of f20,000 payable on maturity or at the end of the year of death if earlier. The company uses the following assumptions for profit testing: Year Mortality Surrender Expenses at Reserves at Surrender rate rate start year per end of year value at end policy per policy of year per policy 0.01 0.05 (750 E3, 100 (2,800 2 0.01 0.05 $15 E6,800 16,250 3 0.01 0.05 $15 (10,900 E10,000 4 0.01 0.05 (15 (15,300 $14,500 5 0.01 0 Surrenders occur only at the end of a year immediately before a premium is paid. The surrender rates shown in the table above are applied to the number of policies in force at each year-end. (i) Set out the column headings and the formulae you would use to calculate the profit arising each year per policy in force at the beginning of the year. [8] (ii) Calculate (to the nearest 1%) the internal rate of return obtained by the company. Basis: Interest 6% pa [13] [Total 21]