Final Project of Actuarial Mathematics Course v(i) 47-57 (2021)

May 2021 / June 2021 / Accepted Month Year

Illustrative International Journal of Actuarial Science

https://actsci.fmipa.ugm.ac.id/id/

Analysis of Joint-Life Insurance Benefit Reserves of Married Couples Based on

Indonesian Mortality Table Using Frank Copula

Anggia Somya Sita1, Azzahra Nauli Siregar1, Editha Anggrieniputri Kinbenu1, Jovann Luciano
Ika1, Krishna Ayub Ferryan1, Muhammad Umar Abdullah1*, Ni Luh Umadewi Arsari1, Qurrota
A’yuni Majida1

1
Actuarial Science Undergraduate Student, Department of Mathematics, University of Gadjah Mada

Abstract. In this paper, we study the reliance between the insureds multiple-life based on Table of
Mortality Indonesia 2019. With the married couple’s future lifetimes displayed as correlated random
variables, both premium and reserve will not be the same as those that are independent. The level of
dependency has an impact on the reserve of benefits a married couple will get. We use Frank Copula and
Table of Mortality Indonesia 2019 to figure out the differences between the insureds. The methods that
will be used are Multiple-Life, Frank Copula, Multiple Life Insurance, Multiple Life Annuity, and Reserve
for Multiple Life. We break down the difference in the reserves of standard multiple-life coverage
contracts into 3 different reliance levels. With different values of 𝛼, the result shows that the reserves tend
to decrease as 𝛼 gets larger for Joint-Life Insurance and third contract, but the reserves tend to increase
for Last-Survivor Insurance, with 𝛼 is known to be the degree of dependency. We can conclude that the
reserves dependent is slightly different for come contracts than those that are independent which will be
shown in the increase of the correlation. This explains the significance of the reliance model in numerous
life possibilities.
Keywords: Frank copula; Joint-life survival function; Multiple-life; Reserves analysis;
Table Of Mortality

1. Introduction
Every human being has a plan for their life and hope it can go according to what is
planned. Plans related to finance certainly have risks that can not be avoided, therefore in financial
planning insurance is known to minimize the risk. Insurance company is one of the companies
that protects its customers from unwanted events in the future. Insurance companies have several
types of insurance, one of which is life insurance (Achdijat, 1990).
In general, life insurance is divided into 3 (three) types based on the period of time, namely
life insurance for life, term life insurance, and dual purpose life insurance (Fabozzi, 1999). All
types of life insurance will prepare the benefit funds issued by the insurance company. The
reserve of life insurance benefits is the obligation of the insurance company to prepare a certain
amount of benefit funds for each insurance customer. These benefits are prepared by each
insurance company by managing premium funds.

*Muhammad Umar Abdullah’s email: muh.umar.abd@gmail.com, Tel.: +6282134930531

Abdullah (et al.) 47

Currently, insurance companies have not only provided guarantees to one person only,
now insurance companies can provide a joint status guarantee for example is insurance given to
married couples. Benefit in joint status is divided into 2 (two) types based on the time, namely
the benefit given at the time of both deaths (second death) is known as last survivor insurance,
while the benefit given at the time one of them dies (the first death) is known as joint life
insurance. Calculates the premium value for insurance for last survivor and joint life insurance
assuming that the remaining age of the married couple is mutually independent (Matvejevs,
2001).

The last survivor premium of married couples has also been evaluated using the Frank
Copula Method (Fauziah, 2013). In joint life insurance provided to married couples, they have
the same risks as: Accidents while traveling together, infectious diseases, and Stress
Cardiomyopathy for married couples aged 55 years and above. This indicates that the remaining
ages of the couple are dependent on each other. But for practical matters, insurers will use the
assumption that the remaining age of the spouse is mutually independent. Then, so that when the
policyholder submits a claim for benefit payments and the company does not fail to pay, then the
company needs to calculate the amount of funds that must be available. Reserves are defined as
the amount of funds that must exist at a certain time in order for the insurance company to meet
the obligations of the amount that has been promised until the insurance contract expires. In this
journal, we want to discuss the analysis of the reserve benefits of joint life insurance for married
couples based on the table of mortality Indonesia year 2019 using Frank copula.

2. Methods
2.1. Multiple Life
Based on the notations of Bowers et al. (1997), we denote 𝑇𝑥 as the continuous random
future lifetime of x-year-old males, and 𝑇𝑦 as the continuous random future lifetime of y-year-old
females. In addition, we denote 𝑇0 = 𝑋 as a random variable representing the future lifetime of a
male at birth. Similarly, 𝑇0 = 𝑌 is a random variable that represents the future lifetime of a female
at birth. Then, 𝑇𝑥 and 𝑇𝑦 can be written as conditional random variables

𝑇𝑥 = 𝑋 − 𝑥|𝑋 > 𝑥 (2.1.1)

and

𝑇𝑦 = 𝑌 − 𝑦|𝑌 > 𝑦 (2.1.2)

a. The Joint-Life Status

A status that survives as long as all members of a set of lives survive and fails upon the first
death is called a joint-life status. We can write these random variable as

𝑇𝑥𝑦 =min(𝑇𝑥 , 𝑇𝑦 ) (2.1.3)

𝑇𝑥𝑦 =min(𝑋 − 𝑥|𝑋 > 𝑥, 𝑌 − 𝑦|𝑌 > 𝑦) (2.1.4)

b. The Last-Survivor status

48 Analysis of Joint-Life Insurance Benefit Reserve of Married Couples Based on
Indonesian Mortality Table Using Frank Copula

A survival status that exists as long as at least one member of a set of lives is alive and fails upon
the last death is called the last-survivor status.

𝑇𝑥𝑦
̅̅̅̅ =max(𝑇𝑥 , 𝑇𝑦 ) (2.1.5)
𝑇𝑥𝑦
̅̅̅̅ =max(𝑋 − 𝑥|𝑋 > 𝑥, 𝑌 − 𝑦|𝑌 > 𝑦) (2.1.6)

The definition above gives us a well-known identity

𝑇𝑥𝑦 + 𝑇𝑥𝑦
̅̅̅̅ = 𝑇𝑥 + 𝑇𝑦 (2.1.7)

if (x) and (y) are assumed to be independent. Moreover, from standard textbooks such as Bowers
et al. (1997) we also have

𝑡 𝑝𝑥𝑦 + 𝑡 𝑝𝑥𝑦
̅̅̅̅ = 𝑡 𝑝𝑥 + 𝑡 𝑝𝑦 (2.1.8)
2.2. Frank Copula
Frank Copula is one of the types of Archimedean Copula that will be used in this study. The φ
function is called as the copula generating function, with the assumption φ only have one
parameter, α. Subsequently the flexibility of Archimedean Copula given by the φ function of
Frank Copula (Cherubini et al.,2004) as follows
𝑒𝛼𝑢 −1
φ(𝑢) = 𝑙𝑛 ,α >0 (2.2.1)
𝑒𝛼 −1

Where the inverse function is

𝑙𝑛 (1 + 𝑒 u (𝑒 α −1))
φ−1 (𝑢) = (2.2.2)
α

Then, we may write the Frank Copula c.d.f as

1 (1−𝑒 αu )(1−𝑒 αv )
𝐶(𝑢, 𝑣) = × 𝑙𝑛 [1 − ], −∞ < α < ∞ (2.2.3)
α 1−𝑒 α

Based on 2.2.3 can be applied in actuarial function as

αFT(x) (s) αFT(y) (t)
1 (1−𝑒 )(1−𝑒 )
𝐹𝑇(𝑥)𝑇(𝑦) (𝑠, 𝑡) = × 𝑙𝑛 [1 − ], −∞ < α < ∞ (2.2.4)
α 1−𝑒 α

The advantages of frank copula compared to the other types of Archimedean copula are
Frank Copula is the only Archimedean copula that is comprehensive in that it attains both the
upper and lower Frechet-Hoeffding bounds, therefore it captures the full range of dependence.
Frank Copula allows for any dependence structure from full negative rank correlation to full
positive rank correlation. It is radially symmetric in its dependence structure and imposes the
assumption of asymptotic independence. This copula is used for modelling data with weak
dependencies.

2.3 Multiple Life Insurance

Multiple life insurance is an insurance that works with more than one insured person.
Suppose that insurance with a benefit of 1 is paid at the end of the year of the first death from a
husband and wife with the husband aged x and the wife aged y. The condition for providing
benefits from this insurance is that one of the partners dies. The present value of this insurance is
𝐴𝑥𝑦 = ∑∞
𝑡≤0 𝑣𝑡+1 ( 𝑡 𝑝𝑥𝑦 − 𝑡+1 𝑝𝑥𝑦 ) (2.3.1)
Abdullah (et al.) 49

Meanwhile, if we use the last-survivor status method, where the benefits will be paid after
both people die, the present value of this insurance is
∞
̅̅̅ = ∑0
𝐴𝑥𝑦 𝑣 𝑘+1 ( 𝑘 𝑝𝑥 𝑞𝑥+𝑘 + 𝑘 𝑝𝑦 𝑞𝑦+𝑘 − 𝑘 𝑝𝑥𝑦 𝑞𝑥+𝑘:𝑦+𝑘 ) (2.3.2)

2.4 Multiple Life Annuity

Present value of a payment while a husband (x) and a wife (y) still alive can be written as
below :
𝑎̈𝑥𝑦 = ∑∞
𝑘=0 𝑣𝑘 ⋅ 𝑘 𝑝𝑥𝑦 (2.4.1)

Present value of a payment while at least one of husband (x) or a wife (y) still alive can be written
as below :
∞
̅ = ∑𝑘=0
𝑎𝑥𝑦 𝑣𝑘 ⋅ 𝑘 𝑝𝑥𝑦
̅ (2.4.2)

2.5 Reserve for Multiple Life

For a contract of life insurance that is issued at time 0, the reserve is usually defined by
the conditional expectation of the loss random variable at time t > 0, assuming that the insured is
still alive at that time. We use (t L) to represent the loss random variable at time t, which will
represent the difference between the present value of the future benefits that the insured will
receive and the present value of the future premiums that the insured will pay. For a single life
insurance contract at age x, the reserve at time t can be written as:

tV = E [ t L | Tx > t ] (2.5.1)

However, multiple life insurance cases are slightly different. Because there are two lives,
we have to consider possible situations to calculate reserves. In the first case, both (x) and (y) are
alive, and in the second case, only one of the two is alive. The loss random variable at time t can
be written as:

tV = E [ t L | Txy > t ]
(2.5.2)
tV = E [ t L | Tx > t, Ty > t ] (2.5.3)

tV = E [ t L | Ty > t, Tx > t ] (2.5.4)

In addition, determining the reserves will also vary depending on the type of insurance
contract.
50 Analysis of Joint-Life Insurance Benefit Reserve of Married Couples Based on
Indonesian Mortality Table Using Frank Copula

3. Results and Discussion

3.1. Frank Copula model of joint life
Based on (2.2.3) the chances (x) and (y) of a year old can still remain alive, can be
expressed in the form of:

1 (1−𝑒 α𝑘 𝑞𝑥 )(1−𝑒 α𝑘 𝑞𝑦 )
𝑘 𝑝𝑥𝑦 = 𝑘 𝑝𝑥 + 𝑘 𝑝𝑦 − 1 + 𝑙𝑛 [1 − 𝛼 (1−𝑒 α )
]] (3.1.1)

Based on the model can be obtained expectations of the cash value of annuities:
1 (1−𝑒 α𝑛 𝑝𝑥 )(1−𝑒 α𝑛 𝑞𝑦 )
𝑎̈𝑥𝑦 = ∑∞
𝑘=0 𝑣 𝑘 [𝑘 𝑝𝑥 +𝑘 𝑝𝑦 − 1 + 𝑙𝑛[1 − ]] (3.1.2)
α (1−𝑒 α )

Based on the model can be obtained expectations of the cash value of the benefit:
𝛼 𝑞
1 (1−𝑒𝛼 )−(1−𝑒𝛼𝑘 𝑞𝑥 )(1−𝑒 𝑘 𝑦 )
𝐴𝑥𝑦 = ∑∞
𝑘=0 𝑣𝑘+1
[𝑘 𝑝𝑥 − 𝑘+1 𝑝𝑥 + 𝑘 𝑝𝑦 −𝑘+1 𝑝𝑦 + 𝑙𝑛[ 𝛼 𝑞 ]] (3.1.3)
α (1−𝑒𝛼 )−(1−𝑒𝛼𝑘+1 𝑞𝑥 )(1−𝑒 𝑘+1 𝑦 )

3.2. Frank Copula model of last survivor

The notation 𝑥𝑦 ̅̅̅ denotes the status of the two insured of who is x and y years old, takes
place if either (x) or (y) is still alive and the status ends if both insured died, this is called the Last
Survivor status.

The probability that one of the insured, husband or wife, will live to reach the age of x +
k and y + k year is denoted by 𝑘 𝑝𝑥𝑦
̅̅̅̅ , based on the Frank Copula, it is expressed as

𝛼 𝑞
1 (1−𝑒𝛼𝑘𝑞𝑥 )(1−𝑒 𝑘 𝑦 )
𝑘 𝑝𝑥𝑦
̅̅̅̅
= 1 − (α × 𝑙𝑜𝑔𝑒 (1 − (1−𝑒𝛼 )
)) (3.2.1)

Based on the model can be obtained annuity due with a term of n year;

∞ 1 (1−𝑒 𝛼𝑘𝑞𝑥 )(1−𝑒 𝛼𝑘𝑞𝑦 )

̅ = ∑𝑘=0
𝑎̈𝑥𝑦 𝑣 𝑘 [1 − ( × 𝑙𝑜𝑔𝑒 (1 − ))] (3.2.2)
α (1−𝑒 𝛼 )
The cash value of last survivor insurance or net single premium of Rp1, for n years;
𝛼 𝑞
1 (1−𝑒𝛼 )−(1−𝑒𝛼𝑘+1 𝑞𝑥 )(1−𝑒 𝑘+1 𝑦 )
𝐴𝑥𝑦
̅̅̅ = ∑∞
𝑘=0 𝑣𝑘+1 [α 𝑙𝑜𝑔𝑒 ( (1−𝑒𝛼 )−(1−𝑒𝛼𝑘𝑞𝑥 )(1−𝑒𝛼𝑘𝑞𝑦 ) )] (3.2.3)

3.3. Benefit Reserve Analysis with Frank Copula by contract type

In this section the reserve analysis is based on 3 types of contracts. It is assumed that both the
husband (x) and wife (y) are 50 years old, the annual interest rate is 6%, and the dependency parameters
used 𝛼= -0.1, -1, -2, -3.
Abdullah (et al.) 51

Contract 1

Figure 1: Cash flow and premium formula for Contract 1

In this contract, the insured pay premiums continuously until the point of the first death and are
capable of payment benefit 1 during this period.
Under the independent assumption, the net premium at issue can be calculated using the
equivalence principle of premium modelled by
𝐴𝑥𝑦
𝑃= (3.3.1)
𝑎̈𝑥𝑦

Reserves can be expressed as

𝑡𝑉 = 𝐴𝑥+𝑡:𝑦+𝑡 − 𝑃𝑎̈𝑥+𝑡:𝑦+𝑡 ; 𝑇𝑥𝑦 > 𝑡 (3.3.2)

The model above are a combination of three components: EPV of joint life insurance, the contract
premium and EPV of joint life annuity

Figure 2 : Reserve of Contract 1 at time t (Assumption : 𝑇50:50 > 𝑡)

52 Analysis of Joint-Life Insurance Benefit Reserve of Married Couples Based on
Indonesian Mortality Table Using Frank Copula

Table 1 : Reserve of Contract 1 at time t (Assumption : 𝑇50:50 > 𝑡)

t α=0 α = -0.1 α = -1 α = -2 α = -3

0 0 0 0 0 0

1 0.013154 0.01312 0.012808 0.012469 0.012156

2 0.026448 0.02638 0.025761 0.025088 0.024468

5 0.066764 0.066599 0.065101 0.063476 0.061986

10 0.136456 0.136146 0.133332 0.130304 0.127547

20 0.322261 0.321627 0.315917 0.309848 0.304389

30 0.59121 0.59021 0.581244 0.57179 0.563367

40 0.770718 0.769864 0.762201 0.754115 0.74691

50 0.861784 0.861244 0.856381 0.851206 0.846541

60 0.911275 0.911127 0.909837 0.908536 0.907418

Figure 2 and Table 1 show the pricing of different 𝛼 and the reserved value of the reserved
side (the linear function above). Figure 1 illustrates that as 𝛼 gets larger, reserves tend to decline.
For example, in Table 1, when the independent reserve at time 10 is 0.136456 and the relevant
parameters are -0.1, -1, -2, and -3, the relevant reserves are 0.136146, 0.133332, 0.130304, and
0.127547, respectively.

Contract 2

Figure 3 : Cash flow and premium formula for Contract 2

The concept of contract 2 is the insured continuously pays a premium for the first death occurs
and the benefit will be paid when the second death occurs. The equivalence principle of premium
can be written as:
Abdullah (et al.) 53

𝐴𝑥𝑦
̅̅̅̅
𝑃= (3.3.3)
𝑎̈𝑥𝑦

There are three situations for calculating reserves, which can be written as :

(3.3.4)

Figure 4 : Reserves of Contract 2 at time t (Assumption : 𝑇50:50 > 𝑡)

Table 2 : Reserves of Contract 2 at time 𝑡 (Assumption : 𝑇50:50 > 𝑡)

t α=0 α=-0.1 α=-1 α=-2 α=-3

0 0 0 0 0 0

1 0.0073003 0.007321806 0.00751838 0.00773249 0.0079297

2 0.0148925 0.01493534 0.01532604 0.01575116 0.01614237

5 0.0394646 0.039568517 0.04051431 0.04153969 0.04248018

54 Analysis of Joint-Life Insurance Benefit Reserve of Married Couples Based on
Indonesian Mortality Table Using Frank Copula

10 0.0874595 0.087655459 0.08943136 0.09134223 0.09308261

20 0.2254159 0.225816228 0.22941979 0.23324974 0.23669476

30 0.4369592 0.43759019 0.44324844 0.4492148 0.45453107

40 0.6333703 0.633909241 0.6387452 0.64384856 0.64839569

50 0.7786048 0.77894552 0.78201443 0.78528061 0.78822416

60 0.8989706 0.899063807 0.89987757 0.90069871 0.90140478

From Figure 4, we can conclude that the two insureds are alive at the valuation point. We can see
that in Table 2, when the independent reserve at time 10 is 0.0874595, and dependent reserve are
0.087655459, 0.08943136, 0.09134223, and 0.0930826, the correlation coefficients are -0.1, -3,
-1. Please note that with the increase of αreserves, the initial reserve will increase. According to
the above premium equation, the premium of contract 2 increases because the relevant parameters
have higher values. If the company charges premiums derived from independent assumptions,
but assumes that the future life of the insured is relevant, the premiums collected by the company
will be insufficient; therefore, the insurer will lose money on this particular contract.

Contract 3

Figure 5 : Cash flow and premium formula for Contract 3

Result
In this contract, the insured shall continue to pay premiums until the first death. Thereafter, the
insurance company will continue to pay the annuity until the second death. Using the principle
of premium equivalence, the insurer’s premium is

𝑎𝑥𝑦 − 𝑎𝑥𝑦
𝑃= (3.3.5)
𝑎𝑥𝑦
Abdullah (et al.) 55

To calculate the reserve, we consider three cases written as

(3.3.6)

Figure 6 : Reserve of Contract 3 at time t (Assumption : 𝑇50:50 > 𝑡)

Table 3 : Reserves of Contract 3 at time 𝑡 (Assumption : 𝑇50:50 > 𝑡)

t α=0 α = -0.1 α = -1 α = -2 α = -3

0 0 0 0 0 0

1 0.103412 0.102429 0.093453 0.083677 0.074672

2 0.204152 0.202197 0.184358 0.164947 0.147084

5 0.482288 0.477544 0.43436 0.387541 0.344598

10 0.865612 0.856666 0.775578 0.688328 0.608862

20 1.710931 1.692653 1.528114 1.353238 1.195938

30 2.725095 2.696283 2.437927 2.165502 1.922761

56 Analysis of Joint-Life Insurance Benefit Reserve of Married Couples Based on
Indonesian Mortality Table Using Frank Copula

40 2.426476 2.401868 2.181058 1.948038 1.740417

50 1.46949 1.453934 1.313807 1.164673 1.030271

60 0.217372 0.213114 0.175958 0.138465 0.106225

Figure 6 and Table 3 show the reserve values (linear function above) over different α.
Figure 6 shows that as α becomes larger, reserves tend to fall. For example, in Table 3, when the
independent reserve at time 10 is 0.865612, the dependent reserves are 0.856666, 0.775578,
0.688328, and 0.608862 when each of the correlation parameter is -0.1, -1, -2, and -3 respectively.
It can be observed on the graph that at a certain time, the reserve decreases even though the time
increases. This happens because the value of the benefit annuity also decreases because of the
shorter period of time.

4. Conclusions

This paper calculates the influence of the dependence of the remaining age of the husband
and wife on the amount of benefit reserves. Benefit reserves can be found from the expected value
of the loss random variable. The dependence of the remaining age of the insured partners was
analyzed with a frank copula. Various insurance contracts are analyzed with different degrees of
dependence.

In joint life insurance (first contract) it can be concluded that the greater the level of
dependence, the smaller the reserve benefit. In last survivor insurance (second contract), it can be
concluded that the greater the dependency level, the greater the benefit reserve. In the third
contract where the benefit is an annuity paid from the first death to the last death, it can be
concluded that the greater the level of dependence, the smaller the amount of benefit reserves.

Acknowledgements

We thank God Almighty because thanks to His permission we were able to complete this
paper. Thank you to the lecturer of “Introduction to Actuarial Mathematics 2”, Mr. Adhitya
Ronnie Effendi, assistant lecturer, Mr. Ary, practice assistant, Mr. Devan, Ms. Zulfa, Mr. Allafa,
Ms. Shelly, Ms. Aisyah, Mr. Visco, Ms. Nana, and Ms. Rina, who has guided us in this research
starting from the selection of journals, the use of R software who has guided us in this research.
Attached here is a paper to meet the criteria for assessing the course of “Introduction to Actuarial
Mathematics 2”.

Thanks also to ourselves, namely Anggia Somya Sita, Azzahra Nauli Siregar, Editha
Anggrieniputri Kinbenu, Jovann Luciano Ika, Krishna Ayub Ferryan, Muhammad Umar
Abdullah, Ni Luh Umadewi Arsari, and Qurrota A’yuni Majida who have successfully completed
this research and did not give up halfway. Hopefully this paper can be useful and used properly.
Abdullah (et al.) 57

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Abdullah (et al.) 47