Student Bio
Olondo Utshudi Solange has great appreciation for mathematics of finance, particularly in actuarial risks managements. Coupled with her interest in statistics and analysis of uncertainties, her undergraduate project (BSc Actuarial Science, 2018) focused on analyzing the Lee carter model for projection of longevity risks. In her master’s project (MSc. Actuarial Science, 2020), she applied the phase-type model to compute actuarial functions for whole life insurance contracts. She anticipates that her contributions will be useful to other researchers and actuarial studies.
Project Summary
Project Title: Using Phase-type Distribution to Estimate Actuarial Functions for Whole Life Insurance Policies
Project Abstract
A whole life insurance policy is a contract between an insurance company and an insured life where the insurer pays an amount of money called the sum assured to the dependents of a policy holder upon death of the insured life. In return, the policy holder pays lump sum or regular premiums to the insurance company to cater for the benefits. Recently there has been increasing interest in mortality modeling and projection due to the unprecedented mortality improvement in the recent years and the consequent adverse financial impact on pension plans and annuity business. Past attempts on mortality projection often underestimated the overall mortality improvement. There is therefore need to develop a mortality model that: 1. Fits Mortality Data, 2. Takes into account the biological aging process and can flexibly be adjusted to incorporate medical opinion, 3. Can be used for computation of actuarial functions. This paper proposes the use of phase-type distribution to describe a physiological aging process of a human body and uses the model to compute assurances, annuities, and premiums. The one absorbing state of the Markov process is death while the transient states are the ages. The initial probability that the process starts at phase x for a life aged x entering into contract is 1 while it is 0 for other phases. Results showed that annuities are overpriced while assurances are underpriced. The deviation is even greater for policyholders entering contracts when aged between 40 to 80 years. However, there is small deviations for premium.