More Related Content
What's hot (18)
Similar to Εργασία περί Μαθηματικού Αποθέματος (20)
Εργασία περί Μαθηματικού Αποθέματος
- 1. UNIVERSITY OF PIRAEUS Page 1 MATHEMATICAL RESERVE IN THE GREEK INSURANCE MARKET: METHODS OF CALCULATING Σουλιώτης Λεωνίδας Σ11168 Supervisor: Νεκτάριος Μιλτιάδης
- 2. UNIVERSITY OF PIRAEUS Page 2 TABLE OF CONTENTS 1) Introduction………………………………………………….. 2) Mathematical Reserveand Capital at Risk……………… 3) Mathematical Reserveand Cash Surrender Value…... 4) Calculation of Mathematical Reserve……………………... 5) Exploitationof the Mathematical Reserve……………… 6) Periodic Insurance Companies Examination(in the U.S.A. InsuranceMarket)…………................................................ 7) Conclusion.....................................................................................
- 3. UNIVERSITY OF PIRAEUS Page 3 1) Introduction “The foundation of life insurance is the recognition of the value of the value of the human life and the possibility of indemnification for the lost of that value.” A quote stated by O.C. Oviatt and defines perfectly the meaning of Life Insurance. Life Insurance’s most common role is to face the financial problems that occur after a sudden death. Without Life insurance, it would be almost impossible for the family to save the necessary capital in order to face the unexpected loss of income. Furthermore, life-long Life Insurance is a great opportunity for profitable investments. This investment occurs because of the high premiums of the first years (in the ‘Level Premium Method’), which is invested by the Insurance (according to the agreed Technical Interest) Company in order to draw the premiums for the next years. This capital is called Mathematical (or Legal) Reserve and it’s possession of the insured person. It’s notable to declare that the Mathematical Reserve it’s difficult to be accumulated when the premiums are paid by the method of ‘Yearly Renewable term method’. Also, Mathematical Reserve could be defined as the nominal value of the life insurance contract when the insured person reaches the age of hundred (100) years. A term that is not very useful to people who are not familiar with economic terms and definitions. 12) Mathematical Reserve and Net Amount at Risk Net amount at risk represents the net insurance part of the contract that decreases as years go by. Simultaneously, the mathematical 1 Εισαγωγή στην Ιδιωτική Ασφάλιση, Νεκτάριος Μιλτιάδης Εκδόσεις Forum 2002
- 4. UNIVERSITY OF PIRAEUS Page 4 reserve is increasing. Thus, the compensations of death consist of two parts: The mathematical reserve (Concerning the Savings) The net amount at risk (Concerning the Protection of insured person) The result is that the purpose of the mathematical reserve is to offer lifelong protection. When an insured person reaches an advanced amount of years, it would be affordable for him to pay the very high premiums that would have been set by the insurance company. So, mathematical reserve keeps the premiums in an affordable price and the insured person could enjoy lifelong protection from the insurance.
- 5. UNIVERSITY OF PIRAEUS Page 5 23) Mathematical Reserve and Cash Surrender Value There are many cases that the insured people wants to cancel their Life Insurance contracts and they ask a part or the whole premiums to be returned to them. This action is called Cash Surrender and the capital that is returned to the insured is called Cash Surrender Value. The Cash Surrender, usually, is not accepted by the Insurance companies when the insured people are still in life. When people think that their lives are shaky and they are afraid of dying, in order not to lose the insured capital, they ask for the Cash Surrender case. Usually, the Cash Surrender Value equals the 80% percent or the ¾ of the Mathematical Reserve, but that’s a general rule. In the Greek Insurance Market, there is not a standard percent of the Mathematical Reserve that equals the Cash Surrender Value. So, in theory, the upper limit of the Cash Surrender Value is the whole Mathematical Reserve but in reality, the Cash Surrender Value is fixed in a lower price. Necessary case for a person to claim the Cash Surrender value is to have already pay the premiums of the Insurance Contract for at least 3 years. 4) Calculation of Mathematical Reserve The calculation of the Mathematical Reserve can be by using two methods: The Retrospective Method (calculating deposits and payments in the last period The Prospective method ( calculating the future deposits and payments) 2 Εισαγωγή στην Ασφαλιστική Επιστήμη Πέτρος Κιόχος Εκδόσεις Interbooks (μετάφραση από Ελληνικά)
- 6. UNIVERSITY OF PIRAEUS Page 6 Naturally, both ways generate the same result; the method cannot change the result. 1. The Retrospective Method The Mathematical Reserve equals the value of deposits that made till that day reduced by the value of the payments made till that day. Therefore, it is necessary to establish the current value of all deposits and payments. 2. The Prospective Method The calculation of the Mathematical Reserve can be made based on the future deposits and payments. Namely, we will rely on the principle: the Mathematical Reserve is supposed to cover all future liabilities (payments) of the insurer. The total of all of those liabilities equals the value of the future payments on the day the calculation is made, reduced by the value of the future value of the future deposits on the day the calculation is made. These values are gained by discounting of the nominal values of the future payments and deposits. 5) Exploitation of the Mathematical Reserve As it has already been stated, Mathematical Reserve is property of the owner of the Insurance Contract. The must usual usage of this accumulated capital is to be transformed into a lifelong pension annuity (1). The Insurance Company could guarantee the payment of a pension that would be higher than the capital that the insured would have gathered if he saved money on its own, and also the Insurance
- 7. UNIVERSITY OF PIRAEUS Page 7 Company could guarantee a lifelong payment. Furthermore, in some countries, there is a regular practice that real estate should be passed down from father to son. So, it would be difficult for some people to pay the inheritance tax, and if they decide to do so,they have to sell a part of their real estate. The result is that a Life Insurance contract is a sure method for covering the costs of the inheritance tax (2). Last but not least, most of the times, the accumulated capital is wasted by the beneficiaries of the contract in ways that would not be approved by the owner of the contract. This case can be minimized bysome special clauses that concern the ways that the beneficiaries will take the accumulated capital(3).It has to be noted that in the first case (1), the Mathematical reservewill be received by the owner of the contract. Instead,in the case (2) and (3), the accumulated capital will be received by the beneficiaries of the contract. 36) Periodic Insurance Companies Examination ( in the U.S.A. Insurance Market) Every year all legal reserve life insurance companies submit annual statements to the insurance departmentsofeach state in which they are licensed to do business.The format and contents of the forms used are prescribed by the State Insurance Commissioners and theyare a detailed report of an insurance company's financial status that is important in evaluatingthe company's solvency and compliance with the insurance laws. Every few years, dependingon a company's home state law, all companies operatingin more than one state undergo a detailed home office zone examinationofits financial position.This audit is conducted bya team of State Insurance Department Examiners representingthe various zones in which the companyis licensed to do business.Companieslicensed in only 3 Bill Johnston from http://abcja.sharepoint.com
- 8. UNIVERSITY OF PIRAEUS Page 8 one state are subject onlyto an annual home office examination bytheir State Insurance Department. 7) Conclusion Mathematical Reserve plays an important role on every Life Insurance contract. Moneyinvested by the Insurance Company as the contract is in force. Because Mathematical Reserveis a result of a safe investment,more people tend to sign a Life Insurance contract for beingprotected by the inevitable case of death and for saving moneyfor the times theywon’t be able to work or to ensure a capital forthe beneficiaries ofthe contract. The next graph indicates the increase that the Mathematical reserveof the ‘Fortune Life’ Insurance Companyhas shown.
- 9. UNIVERSITY OF PIRAEUS Page 9 Bibliography 1. Εισαγωγή στην Ιδιωτική Ασφάλιση, Νεκτάριος Μιλτιάδης, Εκδόσεις Forum 2. Ασφαλίσεις Ζωής και Υγείας, Νεκτάριος Μιλτιάδης, Εκδόσεις Σταμούλης 3.Εισαγωγή στην Ασφαλιστική Επιστήμη, Πέτρος Κιόχος, Εκδόσεις Interbooks 4. Risk and Insurance, Mark R. Greene, South Western Publishing CO 5. http://abcja.sharepoint.com (Source from the Internet) 6. http://www.actaeconomica.efbl.org (Source from the Internet)