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Actuarial Project #1: Pricing a Level Term Life Insurance Product

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Project Overview

This project will guide students through the end-to-end process of pricing a level term life insurance product using actuarial techniques. Through a mix of theory, practical exercises, and real-world assumptions, students will gain a solid understanding of life insurance pricing from both technical and business perspectives.

Learning Objectives

By the end of this project, students will:

Understand the components and structure of term life insurance contracts

Determine and justify the appropriate actuarial assumptions

Select and apply life tables to calculate death and survival probabilities

Derive net and gross premiums using actuarial formulas

Perform sensitivity testing and analyze the impact on results

Derive key performance indicators (KPIs)

Prepare and deliver a professional pricing report with complete documentation

Project Modules & Deliverables

Module 1: Introduction to Level Term Insurance

Definition and features of level term insurance
Contract structure: issue age, inception/starting date, sum assured, policy term, mode of payment, premium structure, occupational class, etc
Typical use cases, customer needs, and market relevance
Deliverable: Summary of product features & client objectives

Module 2: Assumption Setting

Mortality rates
Interest rate
Expense assumption
Lapse/termination rates
Deliverable: Assumption sheet with documentation and rationale

Module 3: Actuarial Mathematics

Calculation of the Present Value of Future Benefits (PVFB)
Calculation of the Present Value of Future Premiums (PVFP)
Derivation of net premiums
Derivation of gross premiums
Deliverable: Calculation workbook for net and gross premiums (Excel or actuarial software)

Module 4: Sensitivity and Scenario Testing

Assessing the impact of changes in interest/discount rates
Evaluating the impact of alternative mortality assumptions
Testing the effect of changes in lapse assumptions
Measuring the sensitivity to varying expense levels
Deliverable: Sensitivity analysis workbook and summary report

Module 5: Profit Testing (Optional Advanced)

Projection of future cashflows
Calculation of expected profit emergence over policy term
Application of profit margin targets to calibrate and refine pricing
Identification and calculation of key performance indicators
Deliverable: Profit testing results summary report

Module 6: Final Reporting

Preparation of executive summary outlining key assumptions, methodologies, and pricing results
Clear explanation of actuarial methodology applied
Development of tables and charts for premium levels across ages and policy terms
Deliverable: Final pricing report (for internal company presentation or client presentation)

Tools & Techniques Required

Excel