SAC 305:Pension Mathematics
Topic No.2: Multiple decrement tables and Commutation
functions
Course Lecturer: Johnstone k munywoki
2020
TOPIC 2
Multiple Decrement Table
Mortality theory can be extended to a more general theory involving the effect of
several causes of decrement on a particular body of lives. One example would be
the valuation of a pension scheme where there are several causes of decrement-
death, disability, withdrawal and retirement all operating at the same time. The
mathematical model for such analysis is referred tom as the multiple decrement
table.
The multiple decrement table considers a large number of lives subject to sev-
eral independent cause e.g. death, disability, withdrawal and retirement. It is
similar to the mortality or the single - decrement table. The columns are rep-
resented by the symbols;
x, (al)x , (ad)dx , (ad)w f
x , (ad)x
The prefix ‘a0 is normally enclosed so that the number of active lives is given
by the symbol (al)x the individual decrements say m are (ad)kx with total decre-
ment (ad)x so that;
m
X
(ad)x = (ad)kx
k=1
(ad)x = (al)x − (al)x+1
(ad)dx -decrement due to death
(ad)wx -decrement due to withdrawal
(ad)fx -decrement due to failure
Example: Multiple - Decrement Table
The table below represents a population of apprentices who start to learn
a trade at their 18th birthday and become fully trained at their 21st birthday
provided they have not left due to death (ad)dx , voluntary withdrawal (ad)w
x or
failure (ad)fx .
Age x (al)x (ad)dx (ad)w
x (ad)fx
18 100,000 2,000 5,000 3,000
19 90,000 2,100 4,000 3,900
20 80,000 2,200 2,500 5,300
21 70,000
(i)The probability that a life aged 18 will survive to finish the apprenticeship
will be
(al)23
3 (ap)18 =
(al)18
70, 000
=
100, 000
0.7 =
(ii)The probability that a life aged exactly 20 will withdraw in the next year is
(ad)w
20
(aq)w
20 =
(al)20
2, 500
=
80, 000
= 0.03125
(iii)The probability that a life aged exactly 19 will be failed before the end of
the apprenticeship is
f (ad)f19 + (ad)f20
2 (aq)19 =
(al)19
Forces of decrement
The total force of decrement in a multiple decrement table is defined as
−1 d(al)x
(aµ)x =
(al)x dx
−d
= loge (al)x
dx
This function is mathematically the same as µx in the single decrement table.
In order to define forces of decrement for the individual causes of decrement the
new functions (al)kx are introduced where
∞
X
(al)kx = (ad)kx+t
t=0
and 1 ≤ k ≤ m, there being m causes of decrement.
Example
Find expressions for (al)x and (ad)1x for a double decrement table in which
1
(aµ)x =
1, 000 − x
(aµ)2x = 1
and
(al)0 = 1, 000
2
Solution
1
(aµ)x = +1
1, 000 − x
and Rn
(aµ)x+t dt
n (ap)x =e 0
Therefore x
(al)x = (al)0 e 0 ( 1,000−x +1)dt
1
R
x
= 1, 000e[loge (1,000−t)]0 e−x
1, 000 − x −x
= 1, 000 e
1, 000
Z 1
(ad)1x = (al)x+t (aµ)1x+t dt
0
Z 1
1
= (1, 000 − x − t)e−x−t dt
0 (1, 000 − x − t)
= [−e−x−t ]10
= e−x − e−x−1
Commutation Functions
Define
Dx = v x lx
Nx = Dx + Dx+1 + Dx+2 + ...
Sx = Nx + Nx+1 + Nx+2 + ...
Cx = v x+1 dx
Mx = Cx + Cx+1 + Cx+2 + ...
Rx = Mx + Mx+1 + Mx+2 + ...
Commutation functions are a tool used by pricing and valuation Actuaries.
It is a means by which the net single premiums and the actual present values
for various plans are determined.
The commutation functions make use of the following inputs:
1.a life table which gives the values of lx at integer ages. lx represents the
expected number of survivors at age x out of an original cohort of lives at some
starting age.
2.An assumption regarding a deterministic and constant interest rate per annum
effective, i, that is used for discounting.
The actual calculation for the commutation functions would terminate at the
highest age that is present in the life table chosen.
