A life insurer issues 4-year unit linked endowment assurance contract to a male life aged 40
exact under which level premiums of Rs 10,000 per annum are payable in advance.
In the first policy year, 45% of the premium is allocated to units and 100% in the subsequent
years. The fund management charge is 1.0% p.a. and is deducted at the end of each year.
If the policyholder dies during the term of the policy, the death benefit of 10 times the annual
premium or the bid value of units after deduction of fund management charge, whichever is
higher, is payable at the end of the year of death. On surrender or on survival to the end of
the term, the bid value of the units is payable at the end of the year of exit.
The company uses the following assumptions in its profit test of this contract:
· Independent rates of Mortality: 80% of AM92 Select
· Independent rates of withdrawal: 20% p.a. in the first policy year;
10% p.a. in subsequent years.
· Rate of growth of unit fund: 10% per annum
· Rate of interest on non unit fund: 5% per annum
· Initial Commission: 15% of first year premium.
· Renewal Commission: 3% of subsequent premium.
· Initial Expenses: 20% of first year premium.
· Renewal Expenses: 2% of subsequent premium.
· Risk Discount Rate: 15% per annum.
Calculate the profit margin on the assumption that the insurer does not zeroise future
negative cashflows and those decrements are uniformly distributed over the year.

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Status NEW Posted 05 Sep 2017 01:09 PM My Price 10.00

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