Actuarial Society of India

EXAMINATIONS
5th November 2004

Subject 105– Actuarial Mathematics I

Time allowed: Three Hours (10.30 am – 1.30 pm)

INSTRUCTIONS TO THE CANDIDATES

1. Do not write your name anywhere on the answer scripts. You have only to write your
Candidate’s Number on each answer script.

2. Mark allocations are shown in brackets.

3. Attempt all questions, beginning your answer to each question on a separate sheet.

4. Fasten your answer sheets together in numerical order of questions. This, you may complete
immediately after expiry of the examination time.

5. In addition to this paper you should have available graph paper, Actuarial Tables and an
electronic calculator.

AT THE END OF THE EXAMINATION

Hand in both your answer scripts and this question paper to the supervisor
 ASI 105 1104

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Q.1 a) Express term Ax y in the form E[g(Tx,Ty)].

b) Two lives each aged x, are subject to the same mortality table. According to the mortality
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table and a certain rate of interest , Ax =0.6 and Axx=0.85.calculate Ax x .
[4]

Q.2 A select mortality investigation is to be carried out and the following methods of tabulating
deaths have been suggested as possible alternatives:

No Symbol Definition of x Definition of t

1 1qx,t Age next birthday at policy Nearest duration at
anniversary preceding death death
2 2qx,t Age last birthday at 1 January Curtate duration at
preceding death death

State the rate year or years implied by each of the methods of tabulating deaths. To what ages
and durations will the rates derived from each tabulation of deaths apply, if we are calculating
force of mortality rates. State any assumptions you make.
[4]

Q.3 A man aged 40 purchases a combined endowment assurance and sickness benefit policy with the
following benefits:

 a Sum Assured of Rs 1,00,00 payable on maturity at age 65 or immediately on earlier death

 a sickness benefit of Rs 500 per week for duration of sickness with benefit ceasing at age 65

Premiums, payable weekly in advance are waived during periods of sickness. Premiums are
payable until age 65 or earlier death. There is no waiting or deferred period. Using the
Manchester Unity Sickness Experience 1893/97 Occupation group AHJ Tables and ELT No 15 –
Males 4% pa interest determine the weekly premium.
Expenses: Ignore
[4]
Q.4 A service table (given below) is used on the experience of a large organization. Recent changes
in working conditions are estimated to have reduced the annual independent rates of mortality by
0.005 at all ages. Assuming that the annual independent rates of retirement are unaltered,
prepare a revised service table.

Age No. in service Deaths Retirement

(x) (al)x (ad)dx (ad)rx
60 10,000 299 919
61 8,782 278 897
62 7,607
[5]

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 ASI 105 1104
Q.5 A life insurance company issues a reversionary annuity policy to a male and a female, both of
whom are aged exactly 60. The annuity commences immediately on the death of the first of the
lives to die and is payable subsequently while the second life is alive, for a maximum period of
20 years after the date of commencement of the policy.
The annual amount of the annuity is Rs100000 and is payable continuously.

Calculate the single premium for the policy.

Basis: Mortality: PMA92C20 for the male life and PFA92C20 for the female life.

The lives are independent with respect to mortality.

Interest: 4% per annum
Expenses: Initial: Rs1000 incurred at the outset
Annuity: 2% per annum of the annuity payment, incurred continuously while the annuity is
being paid
[6]
Q.6 Define the following terms with an example each-
a) Temporary initial selection
b) Spurious selection
c) Time selection
[6]
Q.7
a) State the conditions necessary for gross premium retrospective and prospective reserve to be
equal
[3]
b) Demonstrate the equality of gross premium reserve for a yearly regular premium paying
without profit endowment policy, given the conditions necessary for equality
[5]
Total [8]
Q.8 Find the value of age retirement pension benefit for a group of employees aged 55 with total
annual salaries Rs. 20,000, the pension being 1.5% of average annual salary throughout service
for each year of service except for retirement at age 64 last birthday when the proportion is
increased to 1.6% and on retirement at exact age 65 the percentage becomes 1.7% . Total
salaries received to date are Rs.1,00,000. Salary escalation is not to be considered while
calculating the past service pension benefit.

64
Given that S
55
y  32.578

[8]
Q.9 A special type of policy provides that the death benefit at the end of the year of death is the sum
assured increased by the reserve that would have been held if death had not occurred. Find the
annual premium for such a five-year endowment policy with sum assured Rs.1,000 for a life
aged 40. The mortality rates at each age are:
Q40=0.00144, Q41=0.00162, Q42=0.00183,Q43=0.00207,Q44=0.00234.
Interest rate:4% p.a.

Hint: use recurresive relationship of policy reserves [10]

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 ASI 105 1104

Q.10 An endowment assurance maturing at age 65 with sum assured Rs.2,000 has the following
options:

a) The sum assured may be paid in 10 annual instalments of 240 commencing immediately
at maturity;
b) An annuity of Rs.200 per annum payable half-yearly in advance from age 65 instead of
the sum assured;
c) The right on death before maturity, instead of the death benefit being payable
immediately on death, to leave the sum assured on deposit for 5 years receiving interest
at the rate of 10% per annum in the meantime.

Ignoring expenses, calculate the annual premium for the policy for a life aged 50 on the basis of
the AM92 select with 4% interest, allowing where necessary for each of the above options.
[10]

Q.11 A life office sells 20 year with profit endowment assurance contract to lives aged 30 exact. The
basis Sum Assured is Rs 5,00,000, and compound bonuses of 1.1923% pa. In addition terminal
bonus at the rate Rs 20 per 1000 Sum Assured is also payable to maturing policies. The death
benefit is payable at the end of year of death after the compound bonus amount for the current
year has been added. The basis is as follows:

Mortality : AM 92 Select
Interest :6% pa
Expenses
Initial: Rs 1200 per policy and 10% of the total first years’ premiums payable at start of contract
Renewal: 5% of all premiums, excluding the first years’ premiums, payable at start of each year

a) Determine the quarterly premium.

[5]
b) Determine the prospective gross premium reserve on pricing basis at the start of the 10th year
before the payment of premium then due, assuming bonuses have been declared according to
assumption.
[5]
c) Immediately before the payment due at the start of the 10th year, the policyholder wishes to
alter the policy to a without profit endowment assurance with sum assured equal to current
level of sum assured plus vested bonuses and change in policy term to 15 years. Assuming an
alteration expense of Rs 500 per policy, find the revised quarterly premium under the policy.
[4]

d) Comment on your result

[1]
Total [15]

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 ASI 105 1104

Q.12 Calculate the profit signature (using without and with reserves separately) for the following unit-
linked endowment assurance plan:

Term : 5 years
Age at issue: 60
Annual premium: Rs.500
Minimum death benefit: Rs.2,500 i.,e.,death benefit is max(2500,fund value)
Initial expenses: Rs.175
Renewal expenses: Rs.20 per annum (plus inflationary growth)
Inflation rate for expenses: 5% per annum
Allocation proportion: 65% in first year; thereafter 99%
Bid/Offer spread:5%
Management charge for units: 0.75% per annum
Unit growth rate: 6% per annum
Sterling/non-unit fund growth rate: 4% per annum
Mortality rates:

Age Mortality rate

(x) (Qx)

60 0.01443246
61 0.01601356
62 0.01774972
63 0.01965464
64 0.02174310
65 0.02403101

Unit and non-unit cash flows should be shown explicitly for each year.

[20]

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