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IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Death strain at risk, expected and actual death strain, mortality profit

An insurer issues a one-year term assurance with sum assured Rs 5,00,000 payable at the end of the year of death. The reserve at the start of the year is Rs 12,000 per policy and at the end of the year is Rs 15,000 per surviving policy. Death strain at risk (DSAR) per policy is defined as the sum assured minus the reserve at the year end. What is the DSAR?

The death strain at risk is Rs 4,85,000. When a policyholder dies at the year end, the insurer pays the sum assured but no longer needs to hold the year-end reserve, so DSAR equals the sum assured less that reserve: 5,00,000 minus 15,000.

  1. ARs 4,85,000Correct
  2. BRs 4,88,000
  3. CRs 5,00,000
  4. DRs 5,12,000
  5. Rs 5,15,000

Explanation

DSAR = S + (benefit paid on death) minus the reserve released = 5,00,000 - 15,000 = 4,85,000. Rs 4,88,000 wrongly uses the opening reserve of 12,000. Adding the reserve instead of subtracting gives 5,15,000.

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