Thursday, 30 March 2017

Actuarial valuation of Increasing Endowment Assurance

There exists a list of Internationally recognised Actuarial Notations to facilitate and promote consistency and standardisation in the Actuarial profession.

Any actuarial student can find this list on Page #117 of the Actuarial Tables published and sold by the IFoA (Institute and Faculty of Actuaries, UK).
These tables are an essential accessory for writing any actuarial exam. However, the most notable as well as most perplexing ommission from this table is a definition of Increasing Endowment Assurance.

The benefit under such contracts starts at Re1 and then increase by Re1 at each policy anniversary.
So logically, by the date of maturity on the 'n'th policy anniversary, the benefit  should be Rs (n+1) and not n. This means the maturity benefit/the survival benefit should be taken as (n+1).

Somehow, in the IFoA approved study material for the subject CT5, without any explanation or reasoning the maturity benefit is given as 'n' instead of 'n+1'. 
This makes the omission from the actuarial tables all the more curious and puzzling. Image Source 


CT5-06: Variable benefits and with profits policies   Page 9 (The Actuarial Education Company)




InflexionPoint, the best Actuarial coaching center makes it a point to highlight the issue at all possible forums and platforms. All iPoint actuarial students know that there exists a long list of IFoA past actuarial exam papers where the official solution considers the matuarity benefit as (n+1) and not 'n'.
Even the officially backed actuarial study material itself has two solved examples where they conveniently forget - in typical Ghajini style - their own formula in favour of the more logical one with maturity benefit equal to (n+1).

InflexionPoint hereby requests the IFoA and the ActEd to urgently put an end to the actuarial aspirants' miseries by providing suitable and detailed explanations besides, including the CORRECT definition in the 'Internationally accepted Actuarial Notation section of the Actuarial tables.

1 comment:

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