Actuarial Models and Pricing in Life Insurance

Course 4A of the Association's actuarial programme shows how an actuary creates and values a life insurance product: from product architecture and underwriting to model points, cash flow projection, the choice of assumptions, pricing to a target return and profit testing. Expenses and commissions, taxes and regulatory constraints, the construction of mortality tables and multiple decrements are covered separately. The course concludes with a comprehensive pricing case study.

Course programme

1. The life insurance market and product architecture — protection, savings, annuity and investment products, guarantees, profit participation.
2. Underwriting and mortality and morbidity factors — numerical rating, select period, critical illness, the cost of anti-selection.
3. Model points and cash flow projection — grouping of policies, in-force policies, projection over several years.
4. Actuarial assumptions — best estimate, actual-versus-expected analysis, mortality improvement, sensitivity.
5. Pricing strategies and methods — equivalence with loadings, premium for a target margin, elasticity, cross-subsidisation.
6. Expenses, commissions and new business strain — expense allocation, commission structure, capital requirement.
7. Profitability analysis and testing — profit signature, present value of profits, internal rate of return, value of new business.
8. Taxation and regulatory constraints — tax in the profit model, product constraints, IFRS 17 and the contractual service margin.
9. Construction and graduation of mortality tables — exposure, confidence intervals, graduation and tests.
10. Multiple decrements and competing risks — death, lapse, disability, dependent probabilities.
11. Comprehensive pricing case study — an endowment policy from assumptions to a recommendation to the board.

Each lesson comes with notes containing a table of notation, a worked example and practice problems, plus a lesson test. The course final test consists of 40 tasks, including comprehensive case studies; ASAB certificate.

Duration: 11 video lessons, 2 h 43 min of video + lesson tests and a final test.