Net premium determination of reversionary annuity using Markovian approach.

Reversionary annuity is an annuity product that involves two individuals with benefit payments are made if one of the individuals is dead and the other is still alive. In cases involving husband and wife, the existence of dependent future lifetime between them can affect the premium of annuity product. This study aims to determine the net premium of reversionary annuity that involves a married couple and to determine the impact of dependent future lifetime between husband and wife on the premium. Dependent future lifetime between husband and wife is important to be considered because it could affect the price (premium) of the related product. This study applies a continuous-time Markov model approach with 4 discrete state spaces to model the dependence of future lifetime. To determine the parameters of the model, this study uses secondary data of 11,349 joint life and last survivor annuity contracts obtained from Free, et. al (1995). The results show that the premium calculated with dependent future lifetime assumption is less than the premium calculated with independent future lifetime assumption. [ABSTRACT FROM AUTHOR]