SOA Exam ALTAM Sample Question 26
Study guide: Exam ALTAM
An insurer issues fully discrete whole life insurance policies to 10,000 lives, each age 45, with independent future lifetimes.
The death benefit for each policy is 100,000. Gross premiums are determined using the equivalence principle. You are given the following information:
| Pricing and Policy Value Assumptions | Policy Year 1 Actual Experience | Policy Year 2 Actual Experience | |
|---|---|---|---|
| Interest | 5% | 7% | Same as pricing |
| Expense at Start of the Year | 75% of premium + 100 per policy in the first year; 10% of premium + 20 per policy thereafter | 75% of premium + 105 per policy | Same as pricing |
| Settlement Expense | 200 per policy | Same as pricing | 220 per policy |
| Mortality | Standard Ultimate Life Table | Same as pricing | 10 deaths |
Part a (2 points)
Show that the gross premium for each policy is 1020 to the nearest 10. You should calculate the premium to the nearest 1.
Part b (2 points)
Calculate the gross premium policy value for a policy inforce at the end of policy year 1.
Part c (3 points)
For each of interest, expense and mortality, in that order, calculate the gain or loss by source in policy year 1 on this block of policies.
Part d (1 point)
Explain the sources and direction of any gains or losses in policy year 2. Exact values are not necessary.
(This is a modified version of Question 4 from the Spring 2014 Written Answer exam.) (Part (a) and part (b) are covered by the FAM-L exam.)
Answer this question and see the worked solution