This course covers the development of cash flow projection models for the purpose of reserving, pricing and profit-testing life insurance contracts. Profit vectors, profit signatures, and measures of profitability in the context of life insurance will be introduced. Basic models will be extended to deal with competing risks, multiple decrement tables, and the relationship between independent and dependent rates. Techniques to value defined benefit superannuation liabilities will be covered in theory and practice.

Upon successful completion of the requirements for this course, students will be able to:

1. Describe simple types of life insurance contracts and the technique of discounted cash flows for use in reserving and pricing simple life insurance contracts, such as whole life, term life, endowment insurances, and unit-linked contracts.

2. Describe and calculate various measures of profitability, including profit vectors, profit signatures, and the profit margin.

3. Set up profit tests for simple life insurance contracts and use profit tests to determine life insurance premiums and/or provisions. Show how this can be achieved with or without spreadsheets.

4. Describe and apply methods for modelling cash flows contingent on competing risks, including multiple state Markov models.

5. Describe and create multiple decrement tables, and derive relationships between dependent and independent probabilities as used in single and multiple decrement tables.

6. Describe the components of defined benefit superannuation and derive the mathematical formulae required to value the contributions and benefits of a defined benefit superannuation fund.

7. Show how superannuation benefits and the employer contribution rate for defined benefit superannuation funds can be calculated using spreadsheets, or via commutation functions.

• Assignment 1 - 15%
• Assignment 2 - 15%
• Final Exam - 70%

Details about assessment may change during the first two weeks of semester. Please ensure that you check with your lecturer or tutor about any changes. Changes to the assessment schedule will be posted to the Wattle site. Further details regarding the assessment of the course will be announced in lectures and on Wattle.

It is anticipated that students will spend on average 10 hours per week on the course. This includes attending lectures and tutorials, studying the course material, preparing solutions to tutorial questions and assignments and preparing for exams. Students who are finding concepts difficult may need to devote considerably more time to the course. Students will be expected to spend a greater proportion of their time on this course in the lead-up to the assignments and final examination in revising the material and past exam questions or other forms of exam preparation.

STAT2001 Introductory Mathematical Statistics and STAT2032 Financial Mathematics.

In addition, some material from STAT3037/6043 – Life Contingencies will be relevant in this course. For those students who have not completed STAT3037/6043, relevant lecture material from that course and a revision tutorial will be provided.

Weekly lecture notes will be available on Wattle. Hard copies of the lecture notes will not be provided in class. It is up to the student to print out the lecture notes from Wattle.

You will need to obtain a copy of the book Formulae and Tables for Actuarial Examinations. This can be ordered directly through ACTED Australia (website: www.acted.com.au). You will make reference to this book in completing the lecture and tutorial exercises. In addition you will be required to use this book as a reference in the final examination.

Students will be required to supply a calculator. The use of Excel is required for the completion of tutorial and assignment questions in this course. Excel may be used on campus or on the students personal computers or laptops. Students may find it beneficial to bring a laptop to lectures to follow along with Excel examples, although this is not a requirement.

Completion of this course along with Life Contingencies (STAT3037/STAT6043) entitles students for consideration for exemption from Subject CT5 (Contingencies) of the Institute of Actuaries of Australia. To qualify for an exemption from CT5 students must receive an average mark of at least 60 in this course and Life Contingencies. In addition a minimum mark of 50 Pass in both subjects is required to be considered for an exemption.