Premium reserves on whole life insurance using stochastic Vasicek interest rate model.

A reserves fund is a fund that must be held by an insurance company, which serves to pay for sudden claims. As a result, insurance companies are required to have a reserves premium preparation and calculate it accurately. The calculation of premium reserves requires an interest rate. However, in reality, interest rates in Indonesia always experience fluctuating changes. On the other hand, the calculation of premium reserves requires the interest rate of that bank. Hence, this research will employ the Vasicek model to assess the variability in interest rates (stochastic) for the determination of life insurance premium reserves. The types of life insurance used are whole life insurance and term life insurance. The aim of this research is to compare the two types of life insurance using the stochastic interest rate Vasicek model. Furthermore, the Ordinary Least Square method will be applied to ascertain the parameter estimation of the Vasicek interest. The research utilizes data from the Indonesian Mortality Table IV, sourced from the Indonesian Life Insurance Association's website, and bank interest rates spanning the years 2018-2022, obtained from the Central Bank of Indonesia's website. The outcome of this research is a formula for calculating the value of premium reserves for life insurance, specifically for the type of whole life insurance, using the stochastic interest rate of the Vasicek model. In this study, a whole life insurance type is utilized, providing coverage against the risk of death up to the age of 100. The results of the simulation calculations will be compared with those obtained from calculations using term life insurance. After conducting the simulation calculations, the results of the reserve premium calculations for term life insurance and whole life insurance with the stochastic interest rate Vasicek model can be obtained for both a 40-year-old male insured and a 35-year-old female insured. There is an increase in each year for both cases. However, there is a significant difference in the premium reserves that the company needs to prepare. This discrepancy arises due to the different types of insurance used; term life insurance has a contractual time limit, whereas whole life insurance does not have a contractual time limit. The assured amount can be claimed when the insured passes away during the insurance period or when the insured survives until the end of the coverage period. The advantage of this type of insurance is that the insured does not need to renew the contract in the short term. The calculation of these premium reserves also aims to assist insurance companies in preparing reserve funds that will be claimed by the insured at an interest rate that aligns with the reference from Bank Indonesia. [ABSTRACT FROM AUTHOR]