Math 3650 – Pricing Project – Spring 2021
You are an actuarial student working in the life product development area of Storrs Life Insurance Company . Storrs Life has been selling a 10-year Yearly Renewable Term Insurance product for some time now, and has a considerable record of company experience for this product. You have an excel file on Husky CT which contains our current pricing assumptions and YRT premium rates for a female Age 50 non-smoker. On this file you will find our best estimate mortality rates, the Statutory mortality rates, and the current YRT premiums that we charge a female age 50 non-smoker. All other best estimate assumptions-such as face amount, are the same as those we used in class for a male age 45 non-smoker. You should build these assumptions into your model to produce a pricing model for a female age 50 non-smoker for our current YRT product. These are the premium rates and assumptions for the product we currently sell and we are not intending to change them at this time. However, as discussed below, you will still need to perform sensitivity tests on several key pricing assumptions in order to complete your assignment.
Of course, you must also explain, as best as you are able, what is causing these differences. You should also discuss the risks that are the same and similar between the two products and describe these risks.
For both products, you should perform at least one scenario test- changing two related, or dependent variables on which you previously performed sensitivity tests. Explain why you think these two assumptions are related to each other. That is, explain why a change in one assumption would cause you to believe the other assumption would change in the direction and magnitude you tested. IMPORTANT NOTE: It is NOT acceptable to perform a “scenario” test in which one assumption is the first year lapse rate and the other related assumption is the year 2-9 lapse rate. These may very well be related, but this is not a true scenario test. It is really a different lapse rate sensitivity test. Therefore, no credit will be given for the scenario test portion of the project if you do this. If you want to do this test, in which first year and renewal lapse rates are affected together, then do that as part of your sensitivity tests on lapse rates!
