LIFE ENDOWMENT INSURANCE PREMIUM RESERVES THROUGH THE VASICEK INTEREST RATE MODEL

• Main Author: Kendal, Deborah
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/70885
• Institution: Institut Teknologi Bandung

Insurance is a method of reducing financial losses by transferring risk to an insurance company. Insurance products that cover the death of its customers are called life insurance. One type of life insurance is life endowment which has benefits for protection and savings. Premiums are obligations that must be paid by insurance participants. Furthermore, the insurance company is obliged to pay benefits to its customers according to the policy agreement. Premium reserves is a number of funds that are ready to be used to pay for benefits claimed by customers. The determination of premium reserves is influenced by several factors, including fluctuations in interest rates and the probability of life and death. In this Final Project, stochastic interest rates are modeled through the Vasicek model. In this model there are three parameters that must be estimated, namely the speed of interest rates towards the equilibrium point, the average long-term interest rate and interest rate volatility. Based on Bank Indonesia interest rate data for the 2000-2022 period, these parameters are estimated using the maximum likelihood method. Data of life and death probability use Indonesian Mortality Tables III and IV. In calculating prospective premium reserves, reserves for women, constant interest rates, and TMI IV are greater than men, Vasicek and TMI III interest rates. The premium reserve calculated using the Zillmer method gives the same conclusion except at the end of the policy year.