“The Road” By Aaron Bellam Essay

History has had little conscience when it comes to human suffering and struggle. The world has brought us murder, torture, and terror in the packages of war, politics, and everyday human relationships. Religious battles keep racism, greed, and suffering real. The positive is not always apparent when one looks at human existence. Aside from the physical struggle humans had to endure and overcome, emotions also challenge us in hard times. Cormac McCarthy’s The Road, a story set after an apocalypse, takes the characters beyond physical challenges like cold and hunger. In their dystopia, the characters must also face their emotional struggles. As they journey across the dark, barren land, the boy and his father experience the feelings of desperation, fear and hope. The first emotion that urges the pair on in their journey is desperation. The father and son are desperate for many things; food, warmth, and not to be caught and raped by others. As well; the two are desperate to find and share with other good guys. The man and his emaciated bay have such a strong desperation to find food and food is so scarce that the pair finds â€Å"the bones of a small animal dismembered and placed in a pile, possibly a cat†. (McCarthy.2006.Pg26) This find is proof that other survivors have turned to alternate forms of food to try and give themselves energy for the trek. Warmth is another huge luxury that the father and his boy wish they had. After a find of supplies in an abandoned house, they ‘sat wrapped in the quilt naked while the man held the boy’s feet to his stomach to warm them. (McCarthy. 2006.Pg31). The man is obviously willing to do anything; he is determined to keep his son warm and comfortable, even if it takes away from his own comfort. Hiding from people looking to catch others to eat is a further element of despair the two are forced to cope with. Cannibals roam this dystopia. After finding people in a cellar, some with limbs chopped off, the son is left horrified. The man and the son are desperate to find other ‘good guys’ like them so that they aren’t alone. Moreover, there are many other emotions the trekkers are desperate for; however these four are some of the most pressing. Ironically, this ugly emotion helps to keep the two going. The second, and most important emotion that drives the father and his son forward, is Fear. The apocalypse has given the man and his son reason to be fearful of many  things: Strangers, Starvation, and being alone. The father is so afraid of strangers that every time they come across another person he becomes very hostile. When they came upon a traveler, they followed him, perhaps because â€Å"The traveler was not one for looking back. They followed him for a while and then they overtook him.† (McCarthy.2006.Pg161) The man has changed drastically since his wife le ft him, and he has become very protective of his son. Starvation is another fear that drives them forward; food is very scarce and when they find food they do what they can to keep people from taking it from them. When the pair sees an old man called Ely walking down the street the father says I see and â€Å"the boy turned and looked at him. I know what the question is the man said. The answer is no. What question? Can we keep him? We can’t.† (McCarthy.2006.Pg.164). After the death of his father the boy is discovered by a family that had been following them. Even though the man had taught him to be very cautious around other people, the boy was very lonely and feared having to travel by himself ,so after making sure that they were â€Å"good guys†; he asked them â€Å"are you carrying the fire? Am I what? Carrying the fire. You’re kind of weirded out, aren’t you? No. Just a little. Yeah. That’s ok. So are you? What, carrying the fire? Yes. Yeah we are.† (McCarthy.2006.Pg283/284), he decides to travel with the family. And while fear is one of the most important emotions the pair faces in the book it is also one of the most important that people have faced since we first developed emotions. And even though fear plays a big part in their movement forward there is still another that is just as important. The Third and final emotion that is expressed in the novel is hope. The boy’s character is a sign of hope to the father throughout the book. In the father’s view the boy is almost described as holy, â€Å"if he is not the word of god, god never spoke†, which gives the sense that the boy is precious to the man and that the boy is the father’s hope like a god is a religious person’s hope. The boy also gives a sense of hope to the reader. This is from his sense of goodness and innocence, the way he gave food to the old m an at the side of the road, which in this world the reader gets a sense that goodness and innocence is unheard of. This gives this bleak, horrific, world a feeling of humanity, a feeling that gives the destroyed world a future â€Å"Goodness will find the little boy. It always has. It will again.† In the road there is a repeated reference to ‘carrying the flame’ which is a symbol  of hope. It is a symbol that mankind will always live on throughout any circumstances. When the man dies he tells the boy the he is now carrying the flame which shows the man’s hope of a better future or merely a just a future for the boy. The food is a sign presented by Cormac McCarthy of hope, when the food is low the scene is shown grimly and when the food is plentiful. When they find the bunker full of food, page 146, the text is full of short sentences ‘Canned hams.’, ‘Corned beef’ which show the father’s joy and almost disbelief of how hopeful the future will be with this plenty. Other than the boy the father has hope in very few things. But one thing which is shown throughout The Road is the father’s sense of morals. The father always reassures the boy and himself that they are the good guys, because they aren’t turning to cannibalism, which gives them the hope to keep them going because they are, to the father, keeping goodness in the world alive, ‘carrying the flame’. In the father’s dream, page 2, the father and the son are holding a light, ‘Their light playing over the wet flowstone walls.’ Which could be interpreted as a reference to the ‘carrying the flame’. The mother is a character presenting hope that has been lost. The mother commits suicide as this is what she sees as the brightest option. The mother says â€Å"as for me my only hope is for eternal nothingness and I hope it with all my heart.† (McCarthy.2006.Pg58/59), this shows how the mother has lost all hope of a future and nothingness is better than life on borrowed time. The last paragraph in the road is full of hope for the boy and the earth’s future. Cormac McCarthy presents the theme of hope in many different ways. He shows the lost hope of people in end of the world situations, the mother and the cannibals. The hope for the future, carrying the flame and the last paragraph. The hope for goodness and generosity in the world, the father’s view of the boy and carrying the flame. Cormac McCarthy’s The Road, a story set in a post-apocalyptic earth, showed the journey off a Man and his son: as they faced physical challenges, such as, Cold and Hunger, they also faced emotional challenges through Desperation, Fear, and Hope. This is a story that shows the perseverance of a man and his son, as they fight to survive.

Different kinds of short story Essay

As there are varieties of subjects, themes and art, there are various types of a short story. Some of the types are ancient tales, humor, satire, fantasy, biography, education, local color, and history. Lets us have a glimpse on each one of them in this article. 1. Ancient Tales It is the power of the utilization of the ancient form of the tale in the modern short story. Italian writer Giovanni Verga’s The She-Wolf (1880), and Chinese writer Yeh Shao-Chun’s Mrs. Li’s Hair are remarkable examples. 2. Fantasy Fantasy stories are nothing but the fair combination of the old tales tradition and the supernatural details. The fine examples of such stories are British writer John Collier’s horror fantasy Bottle Party (1939), Irish author Elizabeth Bowen’s The Demon Lover (1941), and British author Saki’s Tobermory (1911). 3. Humor These types of stories are meant for producing surprise and delight. You will see that the most famous humorous tales and fables were written by the Americans. Mark Twain’s The Celebrated Jumping Frog of Calaveras County (1865), and Joel Chandler Harris’s The Wonderful Tar-Baby Story (1894) are remarkable. There is serious humor in the works of Americans like Eudora Welty’s Petrified Man (1939) and Dorothy Parker’s The Custard Heart (1939). 4. Satire The main purpose of satire is to attack the evils of society. There are writers who wrote stories of sober satire. Austrian author Arthur Schnitzler’s Fate of the Baron (1923), and American Mary McCarthy’s The Man in the Brooks Brothers Shirt (1941) are known for their somber satire. 5. Education Story Such stories revolve around the education of the main character. The good example is American educator Lionel Trilling’s Of This Time, of That Place (1944). 6. History History types deal with a life story or historical event. Welty’s A Still Moment (a 1943 story about naturalist John James Audubon) is fine example of story dealing with history event. 7. Local Color These types of stories deal with the customs and traditions of rural and small-town life. You can enjoy the local color in the stories of George Washington Cable, Maria Edgeworth, Sarah Orne Jewett, and Mary Wilkins Freeman. These are some of the types you may find in sort story genre. In recent times, stories have more local color, diversities in the representations, making use of dialects, and vernacular impressions. The story writes have been taking somewhat flexibility in writing stories as they wish.

Modernity In Criminology Essay Example | Topics and Well Written Essays - 1000 words

Modernity In Criminology - Essay Example These substantive and procedural reforms have converted the historical ideal of the juvenile court as a welfare agency into a quasi-penal system that provides young offenders with neither therapy nor justice. The positivists who created the juvenile court conceived of it as an informal welfare system in which judges made dispositions in the "best interests" of the child. In 1967 the Supreme Court in In re Gault granted juveniles some constitutional procedural rights in delinquency hearings and provided the impetus to modify juvenile courts' procedures, jurisdiction, and purposes. (Feld, 1999, 24-25) The ensuing procedural and substantive convergence between juvenile and criminal courts eliminated virtually all the conceptual and operational differences in strategies of social control for youths and adults. Even proponents reluctantly acknowledge that juvenile courts often fail either to save children or to reduce youth crime. In short, the contemporary juvenile court constitutes a conceptually and administratively bankrupt institution with neither a rationale nor a justification. According to Paul (2002, 69-70) social structural and cultural changes fostered both the initial creation and contemporary transformation of the juvenile court. Ideological changes in cultural conceptions of children and in strategies of social control during the nineteenth century led positivists to create the juvenile court in 1899. ... s combined new theories of criminality, such as positivism, with new ideas about childhood and adolescence to construct a social welfare alternative to criminal courts. They designed juvenile courts to respond flexibly to youths' criminal and non-criminal misconduct, to assimilate and integrate poor and immigrant children, and to expand control and supervision of young people and their families. (Tanenhaus, 2004, 111-112) The juvenile court positivists removed children from the criminal justice and corrections systems, provided them with individualized treatment in a separate system, and substituted a scientific and preventive alternative to the criminal law's punitive policies. By separating children from adults and providing a rehabilitative alternative to punishment, juvenile courts also rejected criminal law's jurisprudence and its procedural safeguards, such as juries and lawyers. Juvenile courts' flexible and discretionary strategies enabled its personnel to differentiate and discriminate between their own children and "other people's children," those of the poor and immigrants. (Duffy, 2004, 39) A century later, social structural changes have modified the cultural conceptions of young people and the strategies of social control that juvenile courts employ. These changes leave the juvenile court, as an institution, searching for a new policy foundation and legal rationale. (Kittrie, 2000, 156-157) Since Gault, social structural, demographic, and legal changes have altered dramatically juvenile courts' structure and functions, the characteristics of their clientele, and the crime and social welfare issues that they confront. The social construction of adolescence as a developmental stage distinct from adulthood and new sensibilities about children began to pose

The effects of Japanese earthquakes to the rest of the world Essay

The effects of Japanese earthquakes to the rest of the world - Essay Example However we all strong and weak alike always lives at the mercy of mother nature and when she unleashes her anger on us; most improved of the human alarming system and protective measures have little to offer. On 11 March, 2011 Japan courted one of the worst earthquake attacks in the history of the nation that measured 8.9-9.0 in Richter scale. The â€Å"earthquake occurred offshore of the east coast of the Tohoku region on the Island of Honshu, Japan.† (RMS Special Report) After the main shock several smaller one follow suit. This earthquake was followed by high tidal wave or tsunami. Adding to the agony the combination of earthquake and tsunami resulted in atomic reactor malfunctioning and eventual burst of the same. These series of catastrophic events without any doubt have resulted in loss of thousands of lives but the cumulative dangers it holds embedded within itself perhaps outweighs the immediate loss that human life living in Japan has incurred so far. This article lea ds an opinion based illustration of the impact of Japanese earthquake on the local and global community regarding the short and long run economy and environment. First of all the immediate impact of the earthquake and the tsunami is on the local community through the destruction of thousands of house, properties and human life. A primary estimate of insured property loss has accounted that only in terms of property a loss equivalent to US$12bn – 35bn has been incurred in this particular earthquake. It should also be kept in mind that this is only a preliminary estimate that is expected to row with time and in actual terms. (Fitch Ratings ) The city of Sendai was worst hit and in entire Japan well over 12 million people who accounts for 10% of the total Japanese population have been significantly affected from this earthquake. Apart from the property an estimated number of 10000 to 50000 cars must have been damaged by the earthquake. Numerous numbers of small sea vessels along with 90 large commercial vessels succumbed to the quake and tidal wave that followed it. Above all over 10000 people are reported missing or dead following the earthquake. (EQECAT; RMS Special Report) Considering the nuclear reactors; at least two are severely damaged. The Fukushima reactor or reactor 1 and reactor 3 both are at danger. These plants are contaminating the environment through the nuclear leakage and radiation has spread as far as Glasgow from them. This particular incident exposes the local and global residents alike since nuclear contamination is a great danger that can spread miles and over continent and can remain in the environment for hundreds of years. Already Russia, China, USA and even Korea have expressed great concern over this issue. (News Flavor) The economic effect on Japan and the rest of world from this earthquake is worth discussing and will have short run and long run dimension. First and foremost the immediate government response and the response th rough aids from the bank of Japan will burden the economy immediately. Funds have to be canalized from other sectors in rescue and restore operations and that will definitely slow down the growth and development process that the nation was experiencing so far. Already the central bank of the country the Bank of Japan has

Statistics Canada, Lafour force surve of, Victoria, Bristish Essay

Statistics Canada, Lafour force surve of, Victoria, Bristish coloumbia, Canada - Essay Example Forestry, fishing, mining, quarying, oil and gas industry. In 2003 this industry was on the peak of the employment rates in B.C., before trade dispute between the Unites States and Canada took place. This trade dispute resulted in a drop in the price of lumber to the extremely low point and penalties imposing on shipment of Canadian lumber (Exports 2002). Some of the mills were closed and obviously had its impact on the employment in the B.C. Construction has shown employment growth tendency by 2005 and has achieved its lowest point in 2012 during the whole period from 2003-2013. Obviously, the growth in 2005 in this sector relates to doubling of housing starts in British Columbia, strength in building permits and investment in non-residential building (Labour Force Statistics 2004). Accommodation and food services sector has been a strong sector in the region during 2004-2005, however in 2005 there was observed continuous decline of the employment share in this sector. However, by 2006 this sector had one of the largest shares of the workforce even during its falling in 2006. Statistics Canada (2013). Table 282-0061 – Labour force survey estimates (LFS), employment by economic region and North American Industry Classification System (NAICS), annual (persons). Available at

Common Information Security Threats Essay Example | Topics and Well Written Essays - 750 words

Common Information Security Threats - Essay Example Example in this sense includes interprocess messages. Other data susceptible to compromise from attackers include, information prepared by a program, and stored. In most instances, the data is modified by the hacker. The modified data provides the hacker a chance to exploit the organization’s program. Additional threat in this light involves direct modification; this enables hackers to initiate other indirect modifications. Example includes altering the internal program information. The altered information makes it easier to create a code that operates arbitrary; as a result, an attacker can add an admin user not authenticated by the systems database. Threats facing service availability Computer and network threats may involve an attack to paralyze service available, such activity halts application functions. In other occasions, an attack on service availability slows down the server. As a consequent, authenticated users are unable to access the server. Compromising service av ailability involves convincing others to hack the firm’s server, attacking bugs, and particularly, the networking stack. System integrity threats This threat, involve altering the organization’s system to create a system that is not trusted. Compromise on the integrity of network systems may involve acts such as creating a malicious code, using root access. The intention, involve enabling the system to permit the code used by the hacker. The hacker may capitalize to create a malicious code, as a result of buffer overflow. The moment the hacker accesses administrative control of the firm’s network system, it becomes difficult to mitigate such threat. Additional threat, may involve impersonation of the server by the hacker; as a result, the hacker can retrieve an authentic password and username. This allows the attacker to obtaining the status of a legal user. An unauthorized user can also alter the firm’s software to prevent certain operations. Example inc lude, repudiating the use of a security item such as credit card. Values for threat and vulnerability Investing on controlling threats and vulnerability within any organization is crucial in terms of minimizing attacks on the information security systems. In essence, it enables the company to prepare adequately, and prevents the anticipated risks. Further, Identifying threats and vulnerability assist in planning for appropriate security tests. This allows the firm to put in place effective measures to minimize security threats on a long- term basis (Jenkins, 1998). Risk management techniques The appropriate risk management techniques for organizations, involve implementing programs, efficient in terms of protecting information systems. This requires a focus on a risk management policy geared toward establishing a cost-effective security system. Further, appropriate management

Omega 3 fatty acids and their correlation to mental health Essay

Omega 3 fatty acids and their correlation to mental health - Essay Example The media and fad dieticians have promoted diets that are low in fat. While there is a basis for reducing our intake of fat, the elimination of the essential omega-3 fatty acids may be responsible for the increasing rates of mental illness in the United States. A primary source for the omega-3 fatty acids is from cold water fish. Researchers have been aware that countries with a high percentage of seafood in their diet were less prone to having numerous mental disorders. Noaghiul & Hibbeln (2003) reported that countries with a diet high in seafood consumption such as Iceland and Korea, had far lower rates of bipolar I disorder, bipolar II, bipolar spectrum, and schizophrenia (p.2224). The study found that Germans, who consumed approximately 25 pounds of seafood per year per person, had a prevalence rate for bipolar spectrum disorder that was over 30 times greater that the population of Iceland where the average seafood consumption is almost 10 times that of the Germans (Noaghiul & Hibbeln, 2003, p.2223-2224). Intermediate countries such as the United States, Korea, and Puerto Rico all showed a strong correlation between the amount of seafood consumed and a lower rate of these major mental illnesses (Noaghiul & Hibbeln, 2003, p.2224). Thoug h they could not demonstrate the activity and causal relationship of omega-3, Noaghiul and Hibbeln (2003) concluded that the studies findings were, "†¦consistent with the hypothesis that an insufficient dietary intake of omega-3 essential fatty acids increases the risk of affective disorders" (p.2225). Increasing the consumption of seafood may help to prevent some forms of mental disorders. Some of the predisposition to the affective disorders may be treatable by increasing the intake of the omega-3 essential fatty acids. Andrew Stoll, director of the pharmacology research laboratory at Harvard

Black Holes (Astronomy) Term Paper Example | Topics and Well Written Essays - 1000 words

Black Holes (Astronomy) - Term Paper Example This means that the general perception that if the sun runs out of its nuclear fuel and is turned into a black hole it will suck the Earth into it, is wrong (Novikov). A region of influence surrounds a black hole from where any mass or light cannot escape. At the boundary of this region light starts leaving the black hole thus the escape velocity from the gravitational field of the black hole at this point becomes equal to the speed of light. The set of such points surrounding the black hole where the escape velocity becomes equal to the speed of light forms a curved boundary which is known as event horizon. The calculation of the distance of event horizon from the centre of a black hole is a simple process if the black hole is uncharged and stationary, however in case of a charged and rotating black hole; the calculations involve very complex equations of particle physics. For a simple non-rotating and uncharged black hole, the radius of the event horizon is found to be directly proportional to the mass of the black hole and inversely proportional to the square of the speed of light. The effective mass of a black hole is the entire mass contained inside the boundaries of event horizon (Raine and Thomas). Black holes are of various different types the most common of which is stellar mass black holes which have masses up to 10 to 15 times of the mass of sun. The stellar mass black holes are formed when a star runs out of its nuclear fuel. A huge supernova explosion supersedes the formation of a black hole. The explosion results in the formation of a black core at the place where the parent star of the black hole existed. The boundary of the mass of the star only defines the core of black hole and after the formation of the black hole its influence extends up to the event horizon. Some of the black holes are present in the core of the galaxies and are of gigantic sizes ranging from

Working in teams Essay Example | Topics and Well Written Essays - 500 words

Working in teams - Essay Example As we progressed, there were a series of in-group conflicts especially due to conflict of ideas as some members wanted their ideas to get priority than others. With time, such conflicts were resolved and the members grew closer leading to achievement of great cohesion. ï » ¿Trust was also an important component in our team development as proposed by Bass and Ryterband (1979) since it allowed our team members to slowly learn to accept the group norms, virtues and values thereby enhancing conformity. This move was essential in assisting us to have a common voice as a team and also in minimizing resistance and conflicts while ensuring effective coordination that allowed for successful presentation delivery (Bass & Ryterband 1979). Team Tasks were assigned based on Meredith Belbin’s Team Roles Theory in terms of the behavioural strengths and weaknesses (Henry & Stevens 1999). The content of the presentation was divided among members in small chunks in order to merge it after individual contribution. Members were delegated individual tasks by the leader based on observation of their behaviour to identify who is better in what area. This enabled us to compensate for each other’s weaknesses while improving our strengths. As such, we were able to ensure that each member made a contribution to the final output. Participating in the group taught me a lot of skills and gave me experiences I didn’t have before. I learnt the importance of interpersonal skills, trust, communication skills, empathy, listening skills among others. According to Brooks (1993), teams have emerged to be essential pillars of most organizations and, therefore, relevant skills are required since even the most brilliant person can miss out for lack of such skills. Furthermore, working in teams enabled us to establish a sense of belonging due to formation of

Ethical Decision Making Model analysis Essay Example for Free

Ethical Decision Making Model analysis Essay What is the ethical decision making model? What is critical thinking? In this paper I will discuss the ethical decision making model and how critical thinking impacts ethical decisions. Personal experiences will be used as examples. When we are faced with making an ethical decision we are usually faced with an ethical dilemma. To make a good decision we need to use Logical thinking that draws conclusions from facts and evidence which according to www.ncrel.com is the definition of critical thinking. Recently I was personally faced with an ethical dilemma that has to do with work and school. Im currently on a tuition reimbursement program though my company and there are certain criteria that will make my paid education taxable or nontaxable. Of course if my tuition is nontaxable I dont have to pay taxes and Ill be saving lots of money. One of the criteria for making my tuition taxable is if my educational program qualifies me for a new position at work. If I answer no, the tuition is not taxable and Ill save some money but, in my situation the answer would be yes so my tuition should be taxed but, If I answer no, no one will find out and Ill be cheating my company or the government out of some money. Im now stuck with an ethical dilemma. In the end I choose to answer yes and pay the taxes, following an ethical decision making model helped me do the right thing. The ethical decision making model I followed and will break down is from the Josephson institute of ethics. The model follows 7 simple steps to finally come to a conclusion and make a decision. 1. STOP AND THINK One of the most important steps to better decisions is the oldest advice in the world: think ahead. To do so its necessary to first stop the momentum of events long enough to permit calm analysis. Stop and think wont always be used if you are faced with a decision that needs to be made very quickly but, if youre permitted the time to think about the situation you should. In my case I though about what could happen if I were to avoid paying taxes. I could get in trouble with the law and even my  company. Would it be worth getting fired? No I dont think so. Stopping to think provides several benefits. It prevents rash decisions. It prepares us for more thoughtful discernment. And it can allow us to mobilize our discipline (1). 2. CLARIFY GOALS Before you choose, clarify your short- and long-term aims. Determine which of your many wants and dont-wants affected by the decision are the most important. The big danger is that decisions that fulfill immediate wants and needs can prevent the achievement of our more important life goals. If I were to break the law it would definitely affect my goal of getting my BS in business management. I could also loose my job if I didnt pay taxes and I wouldnt have the resources to pay for school. 3. DETERMINE FACTS Be sure you have adequate information to support an intelligent choice. You cant make good decisions if you dont know the facts. To determine the facts, first resolve what you know and, then, what you need to know. If you dont have enough facts then go find out more about it. Once we know more facts we then see that more decision factors come into play and its easier to make a decision. Here are some guidelines provide by Josephson institute: Consider the reliability and credibility of the people providing the facts. Consider the basis of the supposed facts. If the person giving you the information says he or she personally heard or saw something, evaluate that person in terms of honesty, accuracy and memory. Remember that assumptions, gossip and hearsay are not the same as facts. Consider all perspectives, but be careful to consider whether the source of the information has values different than yours or has a personal interest that could affect perception of the facts. Where possible seek out the opinions of people whose judgment and character  you respect, but be careful to distinguish the well-grounded opinions of well-informed people from casual speculation, conjecture and guesswork. Finally, evaluate the information you have in terms of completeness and reliability so you have a sense of the certainty and fallibility of your decisions. To find out the facts about my tax evasion I ask my friend Megan Kau whos a tax attorney what she thought I should do. Lets just say that the punishment is worse than the crime and thats all the facts that I needed. 4. DEVELOP OPTIONS Now that you know what you want to achieve and have made your best judgment as to the relevant facts, make a list of options, a set of actions you can take to accomplish your goals (2). If its an especially important decision, talk to someone you trust so you can broaden your perspective and think of new choices. If you can think of only one or two choices, youre probably not thinking hard enough but, in my case I would be breaking the law so actually there were no other choices. I was either breaking the law or not breaking the law. 5. CONSIDER CONSEQUENCES Two techniques help reveal the potential consequences also provided by Josephson Institute: Pillar-ize your options. Filter your choices through each of the Six Pillars of Character: trustworthiness, respect, responsibility, fairness, caring and citizenship. Will the action violate any of the core ethical principles? For instance, does it involve lying or breaking a promise, is it disrespectful to anyone, is it irresponsible, unfair or uncaring, does it involve breaking laws or rules? Eliminate unethical options. Identify the stakeholders and how the decision is likely to affect them. Consider your choices from the point of view of the major stakeholders. Identify whom the decision will help and hurt. In this case, Ive said before, I would have been breaking the law and if I  anyone were to find out about it I would be very ashamed of what I did. In prior readings I remember a quote that said to make a ethical decision ask yourself, would you be ok with it if it was posted on the front page of your local news paper, If the answer is no, then dont do it. 6. CHOOSE Its time to make a decision. If the choice is not immediately clear, use on of the following strategies to make the decision: Talk to people whose judgment you respect. Seek out friends and mentors, but, once youve gathered opinions and advice, the ultimate responsibility is still yours. What would the most ethical person you know do? Think of the person you know or know of who has the strongest character and best ethical judgment. Then ask yourself: what would that person do in your situation? Think of that person as your decision-making role model and try to behave the way he or she would. I choose to do the right thing which is to pay taxes. 7. MONITOR AND MODIFY Since most hard decisions use imperfect information and best effort predictions, some of them will inevitably be wrong. Ethical decision-makers monitor the effects of their choices. If they are not producing the intended results or are causing additional unintended and undesirable results, they re-assess the situation and make new decisions (3). In my case I think Ill live with the decision Ive made. No one will be hurt by my decision and the law wont be broken on my part. As you can see making an ethical decision can be broken down with the 7 steps provided and if the steps are followed, an ethical decision should be made. Critical thinking plays a big part in making my decision even when following the 7 steps listed. Again critical thinking is Logical thinking that draws conclusions from facts and evidence. Critical thinking plays a huge role in step 3 of the model that I used. I think step 3 is one of the most important steps in the process. Sometimes I still have the urge to save some money and skip out on paying taxes but, because Ive used critical thinking as part of my decision, Ive learned to know that facts are important and in the end making the right decision will better me in the future and also help me reach my goals with less obstacles. Works Cited The seven step path to better decisions http://www.josephsoninstitute.org/MED/MED-4sevensteppath.htm Web definitions www.ncrel.com

The Benefits Of Strategic Planning Business Essay

The Benefits Of Strategic Planning Business Essay Formal strategic planning is affected by the macro-environment and this is the highest level layer in the framework, this consists of a wide range of environmental factors that impact to some extent on almost all organisations. The PESTEL framework can be used to identify how future trends in the Political, Economic, Social, Technological, Environment and Legal environments might affect an organisation. Pestel analysis provides the broad date from which key drivers to change can be identified. By using these key drivers organisations can envision scenarios for the future. Scenarios can be used to help organisations decide if change needs to happen depending on the different ways in which the business environment may change. It is important for managers to analyse these factors in the present and how they are likely to change in the future. By analysing these, managers will be able to draw out implications for the organisation. Pestel factors are sometimes linked together i.e. technological factors can impact on economic factors. It is necessary to identify the key drivers of change these are environmental factors that are likely to have a high impact on the success or failure of the strategy. Key drivers vary by industry i.e. Primark may be concerned by social changes that can change customer tastes and behaviours. The critical issues are the implications that are drawn from the understanding in guiding strategic decisions and choices. The next stage is drawn from the environmental analysis specifically strategic opportunities and threats for the organisation. Having the ability to identify these opportunities and threats is extremely valuable when thinking about strategic choices for the future. Opportunities and threats form one half of the SWOT analysis that shapes a companys formulation. The use of SWOT analysis can help summarise the key issues from the business environment and the strategic capability of an organisation that are most likely to impact on strategy development. Once the key issues have been identified an organisation can then assess if it is capable to deal with the changes taking place within the business environment. If the strategic capability is to be understood the business must remember that it is not absolute but relative to its competitors. SWOT analysis is only useful if it is comparative, that is it examines strengths, weaknesses, opportunities and threats. SWOT analysis should help focus discussion on the future choices and to what extent an organisation is capable of supporting these strategies. SWOT analysis should not be used a substitute for more in-depth analysis. In responding strategically to the environment the goal is to reduce identified threats and take advantages of the best opportunities. Peter Drucker (1954), discussing the importance of business policy and strategic planning in his book The Practice of Management says we cannot be content with plans for a future that we can foresee. We must prepare for all possible and a good many impossible contingencies. We must have a workable solution for anything that may come up. By taking advantage of the strategic gap (which is an opportunity in the competitive environment that has not been fully exploited by competitors) organisations can manage threats and opportunities. Core competencies are a set of linked business processes that deliver superior value to the customer, when these are combined they create strategic value and can lead to competitive advantage. By using Porters five forces analysis which is a framework for organisations to analyse industry and business strategy, they can draw upon the five forces that determine the competitive intensity and therefore attractiveness of a market. Three of Porters five forces refer to competition from external sources and the other two are internal threats. This analysis is just one part of the complete Porter strategic model the others include the value chain (VC) and the generic strategies. According to Porter (2008) the job of a strategist is too understand and cope with competition; however managers define competition too narrowly as if it has occurred only among today direct competitors. Competition goes beyond profits to include competitive forces such as customers, suppliers, potential entrants and substitute products; the extended rivalry that results from all five forces defines an industrys structure and shapes the nature of competition within an industry. For example Apple are good at technology and innovation therefore they can take the opportunities that give them competitive advantage and makes them leaders compared to Samsung or Nokia. Porters says there are 5 forces that shape the competition: Threat of new entrants Bargaining power of customers powerful customers usually bargain for better services which involve cost and investment Bargaining power of suppliers may determine the cost of raw materials and other inputs effecting profitability Rivalry among competitors competition influences the pricing and other costs like advertising etc. Threats from substitutes where-ever substantial investments in RD is taking place, the threat of substitutes is large. It also affects profitability. Competitive advantage is the heart of strategy and for the strategy to succeed the organisation should have relevant competitive advantage. We can see an example of this with Toshiba who operate in electrical goods, through a flexible manufacturing system it manufactures different products / varieties of some products on the same assembly lines. At Ohme it assembles nine varieties of computers on the same line and on the adjacent line it assembles 20 varieties of lap top computers. It is able to switch from one product / variety to another instantly at low cost and makes profits on low volume runs too. This flexibility of Toshiba to respond quickly and easily to the fast changing market demand is definitely one of its competitive advantages. Whereas its competitors make profits only through long volume runs of a particular model. However, there are a lot of companies who are choosing not to invest due to the recession; however Lidl and Aldi are taking advantage of supplying cheaper products giving them competitive advantage over say Waitrose. Benefits of Strategic Planning Effective strategic planning can positively improve the performance of an organisation and give them the ability to serve more clients, access additional resources or enhance the quality of service/product. It can also offer solutions to major organisational issues or challenges and gives stakeholders of the organisation an opportunity to develop harmonic solutions to long-term issues/challenges that have been affecting the organisation. Furthermore it allows for forward thinking, allowing an organisation the opportunity to pause and revisit the mission and create long-term vision. It allows clear future direction allowing stakeholders to look to the future, plan and respond to changes. Evaluation One of the major drawbacks of formal strategic planning is the uncertain dynamic environment, things change constantly and everything becomes shorter. The recession at the present time is making everything unpredictable and this is not good for strategic planning. According to Mintzberg (1994) strategic planning should be used to devise and implement the competitiveness of each business unit. Scientific management was pioneered by Fredrick Taylor (1856-1915) and involved separating thinking from doing and thus creating a new function staffed by specialists. Planning systems were expected to produce the best strategies as well as step by step instructions on how to achieve this, but this never worked well. According to Mintzberg strategic planning is not strategic thinking, the most successful strategies are visions, not plans. When an organisation can differentiate between planning and strategic thinking they can then get back to what the strategy making process should be. Once a manger has the ability to learn from all sources around him, including personal experiences and market research and can integrate this into a vision of the direction that the business can then pursue. Mintzberg suggests that strategic planning is a misconception and rests upon three unsound arguments: that prediction is possible, thats strategists can be detached from the subjects of their strategies, and that the strategy-making process can be formalised. Strategic thinkers can apply lessons learned from Mintzberg (1994) three inherent fallacies of traditional planning: The Fallacy of Prediction is the assumption that we can actually control events through a formalised process that involves people engaged in creative or even routine work and can manage to stay on the predicted course. You need more than hard facts you need the personal touch. People are not objective, they are complex. The Fallacy of Detachment is the assumption we can separate the planning from the doing, if the system does the thinking, then strategies must be detached from the tactics. Formulation from implementation, thinkers from doers. One objective is to make sure senior managers receive relevant information without having to immense themselves in the details. One fact is innovation has never been institutionalised and systems have never been able to reproduce the synthesis created by the entrepreneur or the ordinary strategist and probably never will. The Fallacy of Formulisation suggests that systems could certainly process more information, at least hard information. However they could never internalise it, comprehend it, and put it all together. Such control is more a dream that a reality. Reality tells us that anomalies, the fickle behaviour of humans and the limitations of analysis play a huge factor in the organisational outcomes and to disregard them is risky and could lead to incomplete planning. What are the limitations of strategic planning when things are changing rapidly? The limitations of formal strategic planning can be seen if the future is uncertain and the expectations divert from the plan. There could also be internal resistance to formal strategic planning due to factors including: Information flows, decision making and power relationships could be unsettled Current operating problems may drive out long-term planning efforts There are risks and fears of failure New demands will be placed on managers and staff Conflicts with the organisation are exposed Planning is expensive in time and money Planning is difficult and hard work The completed plan limits choices and activities for the organisation in the future CONCLUSIONS The question posed seems to be is strategic planning worthwhile. The answer to this lies within the organisation and is dependent upon size. It seems that the ability to learn and implement strategies contributes to the business performance of small or medium sized companies in a dynamic industry. Leadership is important and organisations today have to deal with dynamic and uncertain environments. To ensure success organisations must be strategically aware. They must understand how changes in their competitive environment are unfolding. They should constantly be on the lookout for new opportunities to exploit their strategic abilities, build on awareness and understanding of current strategies and successes. Organisations must be able to respond quickly in response to opportunities and threats. Organisations must compete effectively and out-perform their rivals in a dynamic environment; they must find suitable ways for creating and adding value for their customers. Overall they must be flexible. Organisations could think about changing their strategy to an emergent strategy which would allow them to adapt to new ideas and according to change. Emergent strategy implies that an organisation is learning what works in practice. An example of this is Groupon who provide daily deals in large cities and in return Groupon get a percentage of the deal usually 50% from the company providing the deal. The company is on track to make $500M in revenue this year and has raised its last round at a $1.35B valuation. Groupon is an example of an emergent strategy which has transformed several times. Organisations could think about downsizing production before closure as companies are killed due to an uncertain dynamic environment. In an article labelled The Real Value of Strategic Planning one manager said our planning process is like a primitive tribal ritual there is a lot of dancing, waving of feathers and beating of drums. No one is exactly sure why we do it, but there is an almost mystical hope that something good will come out of it. Another said, Its like the old Communist system: We pretend to make strategy and they pretend to follow it. Henry Mintzberg has gone so far as to label the phrase strategic planning an oxymoron. He notes that real strategy is made informally in hallway conversations, in working groups, and in quiet moments of reflection on long plane flights and rarely in the panelled conference rooms where formal planning meetings are held.

Terrorism, Surveillance, and Radio-Transmitters :: Exploratory Essays Research Papers

Terrorism, Surveillance, and Radio-Transmitters      Ã‚  Ã‚   ABSTRACT: This paper is an introduction into the discussion of different types of surveillance equipment. The paper centers on different intelligence agencies worldwide that use surveillance equipment, the types of information they need, and how they go about gathering the information. There is also a discussion on the most common type of surveillance equipment used by intelligence agencies, the radio transmitter. The transmitter is described in detail and its myriad of uses in surveillance are illustrated. Finally the ethical question of using surveillance devices that infringe upon the privacy of the individual is discussed.    The topic of our presentation was surveillance, however in order to get a better understanding of the need for surveillance in todays world it is necessary to investigate the role of intelligence organizations, who are one of the major users of surveillance equipment. This paper will analyze the purpose of intelligence organizations, look at the types of information these agencies are seeking, and identify key international intelligence agencies. Moreover the most common type of surveillance equipment used by intelligence agencies worldwide,the radio transmitter, will be examined and explained.    In a dissimilar world, with nations having many different political, economic, and social agendas, information is truly a prime element of a nation's power. Thus intelligence agencies have developed in all major countries to "collect and evaluate information for the purpose of discovering the capabilities and intention of their rivals."[1] In the United States, the importance of this type of information is illustrated by Executive Order No. 12333 which states that the nations intelligence system must "Provide the President with the necessary information on which to base decisions concerning the conduct and development of foreign, defense, and economic policy, and the protection of US. national interests from foreign security threats by any legal means necessary."[2] Consequently, collection of intelligence information is of prime importance for nations to subsiste.    The sources of this intelligence information come from two broad categories: public and covert. When most people think of intelligence organizations they automatically think of James Bond movies and other clandestine spy missions, however over 80% of the information that these intelligence organizations collect comes from public sources like newspapers, media, government documents, embassies, and diplomats. Only about 20% of the information comes from covert sources, but this 20% of the information often turns out to be the most valuable.

Gangs of New York Essay -- Film Analysis

Picture Manhattan in 1860, a time before the city had been dolled up and gotten ready for the silver screen, before the glamour and allure took over. Amsterdam Vallan (DiCaprio) is a young Irish man that migrates to the USA at a young age. Amsterdam’s story takes place in Five Points District of New York, a filthy and dangerous part of the city before it was deleted form history. As a young boy Vallan witnessed his father’s murder at the hand of William Cutting or Bill the Butcher (Day-Lewis) during one of their many gang wars. As Amsterdam’s story progresses along side The Butcher they become inseparable, but Amsterdam had ulterior motive. Ultimately, Amsterdam attempts to betray his new found ally in order to avenge his father’s death. Historical accounts of events are almost always synthesized by the storyteller; in the case Gangs of New York Martin Scorsese tells of Five Points, The Dead Rabbits Riots, and The Draft Riots, but is his fictional story a ccurate through history? "This is the place; these narrow ways diverging to the right and left, and reeking everywhere with dirt and filth... Many of these pigs live here. Do they ever wonder why their masters walk upright instead of going on all fours, and why they talk instead of grunting?" (Dickens 61) The outlandish filth described by Charles Dickens was a first hand account of the intersection of Orange Street, Cross Street, Anthony Street, and Little Water Street, better known as Five Points New York. It became the setting for many of 17th century gangs, but the most prominent were the Bowery Boys and The Dead Rabbits. This wicked part of town was known for its depravity the crimes that flooded the streets, from mugging to murder. Clearly, the slums were the place for v... ...†¢ Burrows, Edwin G., and Mike Wallace. Gotham: A History of New York City to 1898. New York: Oxford UP, 1999. Print. †¢ Cocks, Jay, Steven Zaillian, and Kenneth Lonergan. "Gangs Of New York Final Script." Web. . †¢ Dickens, Charles, and Patricia Ingham. American Notes for General Circulation. London: Penguin, 2000. Print. †¢ Ellis, Edward Robb., and Jeanyee Wong. The Epic of New York City. New York, NY: Carroll & Graf, 2005. Print. †¢ "RIOTING AND BLOODSHED; THE FIGHT AT COW BAY†¦ THE CITY UNDER ARMS." The New York Times. 6 July 1857. Web. . †¢ Sifakis, Carl. The Encyclopedia of American Crime. New York: Facts on File, 2001. Print. †¢ Slayton, Robert A. Empire Statesman: The Rise and Redemption of Al Smith. New York: Free, 2001. Print.

The Chosen :: essays papers

The Chosen The Chosen, written by Chaim Potok may relate to many universal topics, it is clear that it directly relates to the field of education. Mr. Potok has brought us on a journey, which allows many of us to see from an outside prospective, all of the factors, which account for a healthy education. It is a difficult task to relate a novel to the field of education; however, Mr. Potok has made my job easy. The book has received rave reviews from many sources, and the Chicago Tribune said: "†¦Works of this caliber should be occasion for sinning in the streets and shouting from the rooftops.† The story is about the friendship between two Jewish boys, growing up in New York City. The catch is that they are from two different sects, and have different ideas about the future. The first boy we meet is Reuven Malter, the son of a Jewish teacher, David Malter. He raises Reuven alone as his wife passed away. The other boy is Danny Saunders, who is the son of a very devoted Hassidic Jewish tzaddik. Danny is cursed with the fate of taking over his father’s position, and he does not want to do so. Reuven wants to become a mathematician. The accident, which seems as if it will separate these two boys in hatred, actually ends up uniting them. It takes place on a baseball field, made up of concrete, and they are both on opposing teams. The incident occurs when Reuven is playing pitcher, and Danny is the batter. Reuven pitches the ball, and Danny hits it right into Reuvens eye. After being taken to the hospital, we find out that there is some glass in the eye and it must be taken out, and Reuven will remain in the hospital for several days. While in the eye-ward of the hospital, Reuven meets Mr. Savo, a retired boxer, with a patch over his right eye, and Bobby, a young boy who was blinded in a car accident. They have an impact on his life, as he can see that other people have it worse than him. The story takes place in New York City during World War II, and being Jewish, the stage is set for a turbulent time.

Computer Information Systems Brief Essay

In order for the company to continue to thrive, consideration of growth opportunities will also be analyzed. In addition, the threats that Kudler may encounter if changes are not implemented will also be discussed throughout this evaluation. The owner of Kudler Fine Food stores offer gourmet foods and fine wines all within one location. All store locations offer baked goods, meat, seafood, produce, cheese, dairy products, and wine with little or no preservatives added. The success of Kudler Fine Foods is in part from the systems that the stores have in place. For example, the current computer system is available 24 hours a day, seven days a week, the owner provides training to all employees and is, therefore, understood by all employees. This understanding of the computer system enables the daily operations of the business to thrive as sales increase. As the company moves forward and introduces changes with technological advances, continued employee training is a must with the installation of new hardware and software programs. The number of products that must be accounted for, on a daily basis, at the Kudler locations is extensive. Presently, Kudler’s accounting data is collected by point-of-sale (POS) terminals in each store. The terminals are used as cash registers when customers check-out. The POS system records all sales, items, quantities, prices, taxes and totals for all transactions. â€Å"These intelligent terminals use keypads, touch screens, bar code scanners, and other input methods to capture data and interact with end users during a transaction, while relying on servers or other computers in the network for further transaction processing† (O’Brien & Marakas, 2008, p. 81). Furthermore, functions are available for various types of sales reports to be created with the current system. However, the current system does not meet the needs of the business as the computer system is outdated. Furthermore, the founder of the company, Kathy Kudler, is having great difficulty with monitoring the needs of the three stores and the situation will soon become overwhelming with further expansion. Ms. Kudler needs a computer system that will accommodate her current and future needs for her growing gourmet food business. Currently, each of locations operates with a stand-alone POS system. Ms. Kudler must travel between stores to ensure the managers are meeting her high standards and creates a substantial loss in productivity. The lack of remote access also presents an issue for the future expansion plans for the business. With no way to access accounting, inventory, and sales information, successful expansion will not be possible. Ms. Kudler’s presence is a daily requirement at each location to manage the operations, inventory, sales, etc. and without updated computer technology the company cannot see any further growth. Not only is the company facing limited expansion possibilities, but current security measures are not sufficient. Although Kudler’s present system is password protected and has backup capability, financial information may be in jeopardy. With the implementation of a new system can easily remedy this situation giving added security to the company. In addition to the company’s financial information, protection to the company’s customer base should also be of great concern. In particular, the customer’s credit card information is at high risk. Additional security measures addressing such concerns as passwords, employee identification numbers, and restricting employee personal use must be applied. For example, a proxy server can limit the employee’s internet access to approved websites (Bargranoff, Simkin, & Strand, 2008). Not only will a proxy server prevent counterproductive activity from employees, but it will also limit the exposure to threats from viruses, theft, and internet hackers. There are both strengths and weaknesses with Kudler’s Fine Foods current computer technology practices. Kudler Fine Foods uses the POS system to record sales, items, quantities, prices, taxes and totals for all transactions. However a continuous challenge Ms. Kudler faces is the purchasing of additional inventory. The company uses forecasting, which allows the company to replenish its inventory based upon historical sales information. For the company to monitor its supply, a system must be implemented that will track individual items and allow managers to re-order necessary inventory from this information. The issue with a forecasting inventory system is that the decisions are based upon past performance, 2 to 3 years old. Unfortunately, sales do not follow the same pattern from year to year. In addition, sales from holidays, birthdays, weddings, and the like are not accounted for under the forecasting system. Every year orders will continue to change depending on the economic stability of the state. Furthermore, holidays will not always be on the same day and will subsequently affect the forecasting information. In the event that too much inventory is order, the excess is donated to charity if in good condition, if not the excess is thrown away. Inventory management is crucial due to the perishing potential of the inventory items. It is a delicate balance because to satisfy customers, there must be enough on hand merchandise to avoid sales losses. It is imperative that Kudler Fine Foods increase the use of technology, if the company is to continue to grow and thrive. Most importantly that is a definite need for a network to assist Ms. Kudler with her communication needs between her stores and add updated software to handle the company’s inventory needs. To implement the new technology, funding and training will be required. The procurement of new software will be required for Ms. Kudler and her employees to run effectively and efficiently.

Mlc Cheat Sheet

mkThis page intentionally left blank Actuarial Mathematics for Life Contingent Risks How can actuaries best equip themselves for the products and risk structures of the future? In this new textbook, three leaders in actuarial science give a modern perspective on life contingencies. The book begins traditionally, covering actuarial models and theory, and emphasizing practical applications using computational techniques. The authors then develop a more contemporary outlook, introducing multiple state models, emerging cash ? ws and embedded options. Using spreadsheet-style software, the book presents large-scale, realistic examples. Over 150 exercises and solutions teach skills in simulation and projection through computational practice. Balancing rigour with intuition, and emphasizing applications, this textbook is ideal not only for university courses, but also for individuals preparing for professional actuarial examinations and quali? ed actuaries wishing to renew and update their skills.International Series on Actuarial Science Christopher Daykin, Independent Consultant and Actuary Angus Macdonald, Heriot-Watt University The International Series on Actuarial Science, published by Cambridge University Press in conjunction with the Institute of Actuaries and the Faculty of Actuaries, contains textbooks for students taking courses in or related to actuarial science, as well as more advanced works designed for continuing professional development or for describing and synthesizing research.The series is a vehicle for publishing books that re? ect changes and developments in the curriculum, that encourage the introduction of courses on actuarial science in universities, and that show how actuarial science can be used in all areas where there is long-term ? nancial risk. ACTUARIAL MATHEMATICS FOR LIFE CONTINGENT RISKS D AV I D C . M . D I C K S O N University of Melbourne M A RY R . H A R D Y University of Waterloo, Ontario H O WA R D R . WAT E R S Heriot-Watt Univ ersity, Edinburgh CAMBRIDGE UNIVERSITY PRESSCambridge, New York, Melbourne, Madrid, Cape Town, Singapore, Sao Paulo, Delhi, Dubai, Tokyo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York www. cambridge. org Information on this title: www. cambridge. org/9780521118255  © D. C. M. Dickson, M. R. Hardy and H. R. Waters 2009 This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press.First published in print format 2009 ISBN-13 ISBN-13 978-0-511-65169-4 978-0-521-11825-5 eBook (NetLibrary) Hardback Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate. To Carolann, Vivien and Phelim Contents Preface page xiv 1 Introduction to life insurance 1 1. 1 Summary 1 1. 2 Background 1 1. 3 Life insurance and annuity contracts 3 1. 3. 1 Introduction 3 1. 3. Traditional insurance contracts 4 1. 3. 3 Modern insurance contracts 6 1. 3. 4 Distribution methods 8 1. 3. 5 Underwriting 8 1. 3. 6 Premiums 10 1. 3. 7 Life annuities 11 1. 4 Other insurance contracts 12 1. 5 Pension bene? ts 12 1. 5. 1 De? ned bene? t and de? ned contribution pensions 13 1. 5. 2 De? ned bene? t pension design 13 1. 6 Mutual and proprietary insurers 14 1. 7 Typical problems 14 1. 8 Notes and further reading 15 1. 9 Exercises 15 2 Survival models 17 2. 1 Summary 17 2. 2 The future lifetime random variable 17 2. 3 The force of mortality 21 2. 4 Actuarial notation 26 2. Mean and standard deviation of Tx 29 2. 6 Curtate future lifetime 32 2. 6. 1 Kx and ex 32 vii viii 2. 6. 2 Contents The complete and curtate expected fu ture ? lifetimes, ex and ex 2. 7 Notes and further reading 2. 8 Exercises Life tables and selection 3. 1 Summary 3. 2 Life tables 3. 3 Fractional age assumptions 3. 3. 1 Uniform distribution of deaths 3. 3. 2 Constant force of mortality 3. 4 National life tables 3. 5 Survival models for life insurance policyholders 3. 6 Life insurance underwriting 3. 7 Select and ultimate survival models 3. 8 Notation and formulae for select survival models 3. Select life tables 3. 10 Notes and further reading 3. 11 Exercises Insurance bene? ts 4. 1 Summary 4. 2 Introduction 4. 3 Assumptions 4. 4 Valuation of insurance bene? ts ? 4. 4. 1 Whole life insurance: the continuous case, Ax 4. 4. 2 Whole life insurance: the annual case, Ax (m) 4. 4. 3 Whole life insurance: the 1/mthly case, Ax 4. 4. 4 Recursions 4. 4. 5 Term insurance 4. 4. 6 Pure endowment 4. 4. 7 Endowment insurance 4. 4. 8 Deferred insurance bene? ts (m) ? 4. 5 Relating Ax , Ax and Ax 4. 5. 1 Using the uniform distribution of deaths assu mption 4. 5. 2 Using the claims acceleration approach 4. Variable insurance bene? ts 4. 7 Functions for select lives 4. 8 Notes and further reading 4. 9 Exercises Annuities 5. 1 Summary 5. 2 Introduction 3 4 34 35 36 41 41 41 44 44 48 49 52 54 56 58 59 67 67 73 73 73 74 75 75 78 79 81 86 88 89 91 93 93 95 96 101 101 102 107 107 107 5 Contents 5. 3 5. 4 Review of annuities-certain Annual life annuities 5. 4. 1 Whole life annuity-due 5. 4. 2 Term annuity-due 5. 4. 3 Whole life immediate annuity 5. 4. 4 Term immediate annuity 5. 5 Annuities payable continuously 5. 5. 1 Whole life continuous annuity 5. 5. 2 Term continuous annuity 5. 6 Annuities payable m times per year 5. . 1 Introduction 5. 6. 2 Life annuities payable m times a year 5. 6. 3 Term annuities payable m times a year 5. 7 Comparison of annuities by payment frequency 5. 8 Deferred annuities 5. 9 Guaranteed annuities 5. 10 Increasing annuities 5. 10. 1 Arithmetically increasing annuities 5. 10. 2 Geometrically increasing annu ities 5. 11 Evaluating annuity functions 5. 11. 1 Recursions 5. 11. 2 Applying the UDD assumption 5. 11. 3 Woolhouse’s formula 5. 12 Numerical illustrations 5. 13 Functions for select lives 5. 14 Notes and further reading 5. 15 Exercises Premium calculation 6. 1 Summary 6. 2 Preliminaries 6. Assumptions 6. 4 The present value of future loss random variable 6. 5 The equivalence principle 6. 5. 1 Net premiums 6. 6 Gross premium calculation 6. 7 Pro? t 6. 8 The portfolio percentile premium principle 6. 9 Extra risks 6. 9. 1 Age rating 6. 9. 2 Constant addition to  µx 6. 9. 3 Constant multiple of mortality rates ix 108 108 109 112 113 114 115 115 117 118 118 119 120 121 123 125 127 127 129 130 130 131 132 135 136 137 137 142 142 142 143 145 146 146 150 154 162 165 165 165 167 6 x Contents 6. 10 Notes and further reading 6. 11 Exercises Policy values 7. 1 Summary 7. 2 Assumptions 7. Policies with annual cash ? ows 7. 3. 1 The future loss random variable 7. 3. 2 Policy values for policies with annual cash ? ows 7. 3. 3 Recursive formulae for policy values 7. 3. 4 Annual pro? t 7. 3. 5 Asset shares 7. 4 Policy values for policies with cash ? ows at discrete intervals other than annually 7. 4. 1 Recursions 7. 4. 2 Valuation between premium dates 7. 5 Policy values with continuous cash ? ows 7. 5. 1 Thiele’s differential equation 7. 5. 2 Numerical solution of Thiele’s differential equation 7. 6 Policy alterations 7. 7 Retrospective policy value 7. 8 Negative policy values 7. Notes and further reading 7. 10 Exercises Multiple state models 8. 1 Summary 8. 2 Examples of multiple state models 8. 2. 1 The alive–dead model 8. 2. 2 Term insurance with increased bene? t on accidental death 8. 2. 3 The permanent disability model 8. 2. 4 The disability income insurance model 8. 2. 5 The joint life and last survivor model 8. 3 Assumptions and notation 8. 4 Formulae for probabilities 8. 4. 1 Kolmogorov’s forward equations 8. 5 Numerical evaluat ion of probabilities 8. 6 Premiums 8. 7 Policy values and Thiele’s differential equation 8. 7. 1 The disability income model 8. 7. Thiele’s differential equation – the general case 169 170 176 176 176 176 176 182 191 196 200 203 204 205 207 207 211 213 219 220 220 220 230 230 230 230 232 232 233 234 235 239 242 243 247 250 251 255 7 8 Contents 8. 8 8. 9 Multiple decrement models Joint life and last survivor bene? ts 8. 9. 1 The model and assumptions 8. 9. 2 Joint life and last survivor probabilities 8. 9. 3 Joint life and last survivor annuity and insurance functions 8. 9. 4 An important special case: independent survival models 8. 10 Transitions at speci? ed ages 8. 11 Notes and further reading 8. 12 Exercises Pension mathematics 9. Summary 9. 2 Introduction 9. 3 The salary scale function 9. 4 Setting the DC contribution 9. 5 The service table 9. 6 Valuation of bene? ts 9. 6. 1 Final salary plans 9. 6. 2 Career average earnings plans 9. 7 Funding plans 9. 8 Not es and further reading 9. 9 Exercises Interest rate risk 10. 1 Summary 10. 2 The yield curve 10. 3 Valuation of insurances and life annuities 10. 3. 1 Replicating the cash ? ows of a traditional non-participating product 10. 4 Diversi? able and non-diversi? able risk 10. 4. 1 Diversi? able mortality risk 10. 4. 2 Non-diversi? able risk 10. 5 Monte Carlo simulation 10. Notes and further reading 10. 7 Exercises Emerging costs for traditional life insurance 11. 1 Summary 11. 2 Pro? t testing for traditional life insurance 11. 2. 1 The net cash ? ows for a policy 11. 2. 2 Reserves 11. 3 Pro? t measures 11. 4 A further example of a pro? t test xi 256 261 261 262 264 270 274 278 279 290 290 290 291 294 297 306 306 312 314 319 319 326 326 326 330 332 334 335 336 342 348 348 353 353 353 353 355 358 360 9 10 11 xii Contents 11. 5 Notes and further reading 11. 6 Exercises Emerging costs for equity-linked insurance 12. 1 Summary 12. 2 Equity-linked insurance 12. 3 Deterministic pro? testing fo r equity-linked insurance 12. 4 Stochastic pro? t testing 12. 5 Stochastic pricing 12. 6 Stochastic reserving 12. 6. 1 Reserving for policies with non-diversi? able risk 12. 6. 2 Quantile reserving 12. 6. 3 CTE reserving 12. 6. 4 Comments on reserving 12. 7 Notes and further reading 12. 8 Exercises Option pricing 13. 1 Summary 13. 2 Introduction 13. 3 The ‘no arbitrage’ assumption 13. 4 Options 13. 5 The binomial option pricing model 13. 5. 1 Assumptions 13. 5. 2 Pricing over a single time period 13. 5. 3 Pricing over two time periods 13. 5. 4 Summary of the binomial model option pricing technique 13. The Black–Scholes–Merton model 13. 6. 1 The model 13. 6. 2 The Black–Scholes–Merton option pricing formula 13. 7 Notes and further reading 13. 8 Exercises Embedded options 14. 1 Summary 14. 2 Introduction 14. 3 Guaranteed minimum maturity bene? t 14. 3. 1 Pricing 14. 3. 2 Reserving 14. 4 Guaranteed minimum death bene? t 14. 4. 1 Pricing 14. 4. 2 Reserving 369 369 374 374 374 375 384 388 390 390 391 393 394 395 395 401 401 401 402 403 405 405 405 410 413 414 414 416 427 428 431 431 431 433 433 436 438 438 440 12 13 14 Contents 14. 5 Pricing methods for embedded options 14. 6 Risk management 14. 7 Emerging costs 14. Notes and further reading 14. 9 Exercises A Probability theory A. 1 Probability distributions A. 1. 1 Binomial distribution A. 1. 2 Uniform distribution A. 1. 3 Normal distribution A. 1. 4 Lognormal distribution A. 2 The central limit theorem A. 3 Functions of a random variable A. 3. 1 Discrete random variables A. 3. 2 Continuous random variables A. 3. 3 Mixed random variables A. 4 Conditional expectation and conditional variance A. 5 Notes and further reading B Numerical techniques B. 1 Numerical integration B. 1. 1 The trapezium rule B. 1. 2 Repeated Simpson’s rule B. 1. 3 Integrals over an in? nite interval B. Woolhouse’s formula B. 3 Notes and further reading C Simulation C. 1 The inverse transf orm method C. 2 Simulation from a normal distribution C. 2. 1 The Box–Muller method C. 2. 2 The polar method C. 3 Notes and further reading References Author index Index xiii 444 447 449 457 458 464 464 464 464 465 466 469 469 470 470 471 472 473 474 474 474 476 477 478 479 480 480 481 482 482 482 483 487 488 Preface Life insurance has undergone enormous change in the last two to three decades. New and innovative products have been developed at the same time as we have seen vast increases in computational power.In addition, the ? eld of ? nance has experienced a revolution in the development of a mathematical theory of options and ? nancial guarantees, ? rst pioneered in the work of Black, Scholes and Merton, and actuaries have come to realize the importance of that work to risk management in actuarial contexts. Given the changes occurring in the interconnected worlds of ? nance and life insurance, we believe that this is a good time to recast the mathematics of life continge nt risk to be better adapted to the products, science and technology that are relevant to current and future actuaries.In this book we have developed the theory to measure and manage risks that are contingent on demographic experience as well as on ? nancial variables. The material is presented with a certain level of mathematical rigour; we intend for readers to understand the principles involved, rather than to memorize methods or formulae. The reason is that a rigorous approach will prove more useful in the long run than a short-term utilitarian outlook, as theory can be adapted to changing products and technology in ways that techniques, without scienti? c support, cannot.We start from a traditional approach, and then develop a more contemporary perspective. The ? rst seven chapters set the context for the material, and cover traditional actuarial models and theory of life contingencies, with modern computational techniques integrated throughout, and with an emphasis on the prac tical context for the survival models and valuation methods presented. Through the focus on realistic contracts and assumptions, we aim to foster a general business awareness in the life insurance context, at the same time as we develop the mathematical tools for risk management in that context. iv Preface xv In Chapter 8 we introduce multiple state models, which generalize the life– death contingency structure of previous chapters. Using multiple state models allows a single framework for a wide range of insurance, including bene? ts which depend on health status, on cause of death bene? ts, or on two or more lives. In Chapter 9 we apply the theory developed in the earlier chapters to problems involving pension bene? ts. Pension mathematics has some specialized concepts, particularly in funding principles, but in general this chapter is an application of the theory in the preceding chapters.In Chapter 10 we move to a more sophisticated view of interest rate models and intere st rate risk. In this chapter we explore the crucially important difference between diversi? able and non-diversi? able risk. Investment risk represents a source of non-diversi? able risk, and in this chapter we show how we can reduce the risk by matching cash ? ows from assets and liabilities. In Chapter 11 we continue the cash ? ow approach, developing the emerging cash ? ows for traditional insurance products. One of the liberating aspects of the computer revolution for actuaries is that we are no longer required to summarize complex bene? s in a single actuarial value; we can go much further in projecting the cash ? ows to see how and when surplus will emerge. This is much richer information that the actuary can use to assess pro? tability and to better manage portfolio assets and liabilities. In Chapter 12 we repeat the emerging cash ? ow approach, but here we look at equity-linked contracts, where a ? nancial guarantee is commonly part of the contingent bene? t. The real risks for such products can only be assessed taking the random variation in potential outcomes into consideration, and we demonstrate this with Monte Carlo simulation of the emerging cash ? ws. The products that are explored in Chapter 12 contain ? nancial guarantees embedded in the life contingent bene? ts. Option theory is the mathematics of valuation and risk management of ? nancial guarantees. In Chapter 13 we introduce the fundamental assumptions and results of option theory. In Chapter 14 we apply option theory to the embedded options of ? nancial guarantees in insurance products. The theory can be used for pricing and for determining appropriate reserves, as well as for assessing pro? tability.The material in this book is designed for undergraduate and graduate programmes in actuarial science, and for those self-studying for professional actuarial exams. Students should have suf? cient background in probability to be able to calculate moments of functions of one or two random vari ables, and to handle conditional expectations and variances. We also assume familiarity with the binomial, uniform, exponential, normal and lognormal distributions. Some of the more important results are reviewed in Appendix A. We also assume xvi Preface that readers have completed an introductory level course in the mathematics of ? ance, and are aware of the actuarial notation for annuities-certain. Throughout, we have opted to use examples that liberally call on spreadsheetstyle software. Spreadsheets are ubiquitous tools in actuarial practice, and it is natural to use them throughout, allowing us to use more realistic examples, rather than having to simplify for the sake of mathematical tractability. Other software could be used equally effectively, but spreadsheets represent a fairly universal language that is easily accessible. To keep the computation requirements reasonable, we have ensured hat every example and exercise can be completed in Microsoft Excel, without needing an y VBA code or macros. Readers who have suf? cient familiarity to write their own code may ? nd more ef? cient solutions than those that we have presented, but our principle was that no reader should need to know more than the basic Excel functions and applications. It will be very useful for anyone working through the material of this book to construct their own spreadsheet tables as they work through the ? rst seven chapters, to generate mortality and actuarial functions for a range of mortality models and interest rates.In the worked examples in the text, we have worked with greater accuracy than we record, so there will be some differences from rounding when working with intermediate ? gures. One of the advantages of spreadsheets is the ease of implementation of numerical integration algorithms. We assume that students are aware of the principles of numerical integration, and we give some of the most useful algorithms in Appendix B. The material in this book is appropriate for tw o one-semester courses. The ? rst seven chapters form a fairly traditional basis, and would reasonably constitute a ? st course. Chapters 8–14 introduce more contemporary material. Chapter 13 may be omitted by readers who have studied an introductory course covering pricing and delta hedging in a Black–Scholes–Merton model. Chapter 9, on pension mathematics, is not required for subsequent chapters, and could be omitted if a single focus on life insurance is preferred. Acknowledgements Many of our students and colleagues have made valuable comments on earlier drafts of parts of the book. Particular thanks go to Carole Bernard, Phelim Boyle, Johnny Li, Ana Maria Mera, Kok Keng Siaw and Matthew Till.The authors gratefully acknowledge the contribution of the Departments of Statistics and Actuarial Science, University of Waterloo, and Actuarial Mathematics and Statistics, Heriot-Watt University, in welcoming the non-resident Preface xvii authors for short visits to w ork on this book. These visits signi? cantly shortened the time it has taken to write the book (to only one year beyond the original deadline). David Dickson University of Melbourne Mary Hardy University of Waterloo Howard Waters Heriot-Watt University 1 Introduction to life insurance 1. Summary Actuaries apply scienti? c principles and techniques from a range of other disciplines to problems involving risk, uncertainty and ? nance. In this chapter we set the context for the mathematics of later chapters, by describing some of the background to modern actuarial practice in life insurance, followed by a brief description of the major types of life insurance products that are sold in developed insurance markets. Because pension liabilities are similar in many ways to life insurance liabilities, we also describe some common pension bene? ts.We give examples of the actuarial questions arising from the risk management of these contracts. How to answer such questions, and solve the result ing problems, is the subject of the following chapters. 1. 2 Background The ? rst actuaries were employed by life insurance companies in the early eighteenth century to provide a scienti? c basis for managing the companies’ assets and liabilities. The liabilities depended on the number of deaths occurring amongst the insured lives each year. The modelling of mortality became a topic of both commercial and general scienti? interest, and it attracted many signi? cant scientists and mathematicians to actuarial problems, with the result that much of the early work in the ? eld of probability was closely connected with the development of solutions to actuarial problems. The earliest life insurance policies provided that the policyholder would pay an amount, called the premium, to the insurer. If the named life insured died during the year that the contract was in force, the insurer would pay a predetermined lump sum, the sum insured, to the policyholder or his or her estate. So, t he ? st life insurance contracts were annual contracts. Each year the premium would increase as the probability of death increased. If the insured life became very ill at the renewal date, the insurance might not be renewed, in which case 1 2 Introduction to life insurance no bene? t would be paid on the life’s subsequent death. Over a large number of contracts, the premium income each year should approximately match the claims outgo. This method of matching income and outgo annually, with no attempt to smooth or balance the premiums over the years, is called assessmentism.This method is still used for group life insurance, where an employer purchases life insurance cover for its employees on a year-to-year basis. The radical development in the later eighteenth century was the level premium contract. The problem with assessmentism was that the annual increases in premiums discouraged policyholders from renewing their contracts. The level premium policy offered the policyholde r the option to lock-in a regular premium, payable perhaps weekly, monthly, quarterly or annually, for a number of years.This was much more popular with policyholders, as they would not be priced out of the insurance contract just when it might be most needed. For the insurer, the attraction of the longer contract was a greater likelihood of the policyholder paying premiums for a longer period. However, a problem for the insurer was that the longer contracts were more complex to model, and offered more ? nancial risk. For these contracts then, actuarial techniques had to develop beyond the year-to-year modelling of mortality probabilities. In particular, it became necessary to incorporate ? nancial considerations into the modelling of income and outgo.Over a one-year contract, the time value of money is not a critical aspect. Over, say, a 30-year contract, it becomes a very important part of the modelling and management of risk. Another development in life insurance in the nineteent h century was the concept of insurable interest. This was a requirement in law that the person contracting to pay the life insurance premiums should face a ? nancial loss on the death of the insured life that was no less than the sum insured under the policy. The insurable interest requirement disallowed the use of insurance as a form of gambling on the lives of public ? ures, but more importantly, removed the incentive for a policyholder to hasten the death of the named insured life. Subsequently, insurance policies tended to be purchased by the insured life, and in the rest of this book we use the convention that the policyholder who pays the premiums is also the life insured, whose survival or death triggers the payment of the sum insured under the conditions of the contract. The earliest studies of mortality include life tables constructed by John Graunt and Edmund Halley. A life table summarizes a survival model by specifying the proportion of lives that are expected to survive to each age.Using London mortality data from the early seventeenth century, Graunt proposed, for example, that each new life had a probability of 40% of surviving to age 16, and a probability of 1% of surviving to age 76. Edmund Halley, famous for his astronomical calculations, used mortality data from the city of Breslau in the late seventeenth century as the basis for his life table, which, like Graunt’s, was constructed by 1. 3 Life insurance and annuity contracts 3 proposing the average (‘medium’ in Halley’s phrase) proportion of survivors to each age from an arbitrary number of births.Halley took the work two steps further. First, he used the table to draw inference about the conditional survival probabilities at intermediate ages. That is, given the probability that a newborn life survives to each subsequent age, it is possible to infer the probability that a life aged, say, 20, will survive to each subsequent age, using the condition that a life ag ed zero survives to age 20. The second major innovation was that Halley combined the mortality data with an assumption about interest rates to ? nd the value of a whole life annuity at different ages.A whole life annuity is a contract paying a level sum at regular intervals while the named life (the annuitant) is still alive. The calculations in Halley’s paper bear a remarkable similarity to some of the work still used by actuaries in pensions and life insurance. This book continues in the tradition of combining models of mortality with models in ? nance to develop a framework for pricing and risk management of long-term policies in life insurance. Many of the same techniques are relevant also in pensions mathematics. However, there have been many changes since the ? st long-term policies of the late eighteenth century. 1. 3 Life insurance and annuity contracts 1. 3. 1 Introduction The life insurance and annuity contracts that were the object of study of the early actuaries w ere very similar to the contracts written up to the 1980s in all the developed insurance markets. Recently, however, the design of life insurance products has radically changed, and the techniques needed to manage these more modern contracts are more complex than ever. The reasons for the changes include: †¢ Increased interest by the insurers in offering combined savings and insurance †¢ †¢ †¢ products. The original life insurance products offered a payment to indemnify (or offset) the hardship caused by the death of the policyholder. Many modern contracts combine the indemnity concept with an opportunity to invest. More powerful computational facilities allow more complex products to be modelled. Policyholders have become more sophisticated investors, and require more options in their contracts, allowing them to vary premiums or sums insured, for example. More competition has led to insurers creating increasingly complex products in order to attract more busines s.The risk management techniques in ? nancial products have also become increasingly complex, and insurers have offered some bene? ts, particularly 4 Introduction to life insurance ? nancial guarantees, that require sophisticated techniques from ? nancial engineering to measure and manage the risk. In the remainder of this section we describe some of the most important modern insurance contracts, which will later be used as examples in the book. Different countries have different names and types of contracts; we have tried to cover the major contract types in North America, the United Kingdom and Australia.The basic transaction of life insurance is an exchange; the policyholder pays premiums in return for a later payment from the insurer which is life contingent, by which we mean that it depends on the death or survival or possibly the state of health of the policyholder. We usually use the term ‘insurance’ when the bene? t is paid as a single lump sum, either on the de ath of the policyholder or on survival to a predetermined maturity date. (In the UK it is common to use the term ‘assurance’ for insurance contracts involving lives, and insurance for contracts involving property. ) An annuity is a bene? in the form of a regular series of payments, usually conditional on the survival of the policyholder. 1. 3. 2 Traditional insurance contracts Term, whole life and endowment insurance are the traditional products, providing cash bene? ts on death or maturity, usually with predetermined premium and bene? t amounts. We describe each in a little more detail here. Term insurance pays a lump sum bene? t on the death of the policyholder, provided death occurs before the end of a speci? ed term. Term insurance allows a policyholder to provide a ? xed sum for his or her dependents in the event of the policyholder’s death.Level term insurance indicates a level sum insured and regular, level premiums. Decreasing term insurance indicates tha t the sum insured and (usually) premiums decrease over the term of the contract. Decreasing term insurance is popular in the UK where it is used in conjunction with a home mortgage; if the policyholder dies, the remaining mortgage is paid from the term insurance proceeds. Renewable term insurance offers the policyholder the option of renewing the policy at the end of the original term, without further evidence of the policyholder’s health status.In North America, Yearly Renewable Term (YRT) insurance is common, under which insurability is guaranteed for some ? xed period, though the contract is written only for one year at a time. 1. 3 Life insurance and annuity contracts 5 Convertible term insurance offers the policyholder the option to convert to a whole life or endowment insurance at the end of the original term, without further evidence of the policyholder’s health status. Whole life insurance pays a lump sum bene? t on the death of the policyholder whenever it occ urs.For regular premium contracts, the premium is often payable only up to some maximum age, such as 80. This avoids the problem that older lives may be less able to pay the premiums. Endowment insurance offers a lump sum bene? t paid either on the death of the policyholder or at the end of a speci? ed term, whichever occurs ? rst. This is a mixture of a term insurance bene? t and a savings element. If the policyholder dies, the sum insured is paid just as under term insurance; if the policyholder survives, the sum insured is treated as a maturing investment. Endowment insurance is obsolete in many jurisdictions.Traditional endowment insurance policies are not currently sold in the UK, but there are large portfolios of policies on the books of UK insurers, because until the late 1990s, endowment insurance policies were often used to repay home mortgages. The policyholder (who is the home owner) paid interest on the mortgage loan, and the principal was paid from the proceeds on the e ndowment insurance, either on the death of the policyholder or at the ? nal mortgage repayment date. Endowment insurance policies are becoming popular in developing nations, particularly for ‘micro-insurance’ where the amounts involved are small.It is hard for small investors to achieve good rates of return on investments, because of heavy expense charges. By pooling the death and survival bene? ts under the endowment contract, the policyholder gains on the investment side from the resulting economies of scale, and from the investment expertise of the insurer. With-pro? t insurance Also part of the traditional design of insurance is the division of business into ‘with-pro? t’ (also known, especially in North America, as ‘participating’, or ‘par’ business), and ‘without pro? t’ (also known as ‘non-participating’ or ‘non-par’). Under with-pro? t arrangements, the pro? s earned on the invested pr emiums are shared with the policyholders. In North America, the with-pro? t arrangement often takes the form of cash dividends or reduced premiums. In the UK and in Australia the traditional approach is to use the pro? ts to increase the sum insured, through bonuses called ‘reversionary bonuses’and ‘terminal bonuses’. Reversionary bonuses are awarded during the term of the contract; once a reversionary bonus is awarded it is guaranteed. Terminal bonuses are awarded when the policy matures, either through the death of the insured, or when an endowment policy reaches the end of the term.Reversionary bonuses 6 Introduction to life insurance Table 1. 1. Year 1 2 3 . . . Bonus on original sum insured 2% 2. 5% 2. 5% . . . Bonus on bonus 5% 6% 6% . . . Total bonus 2000. 00 4620. 00 7397. 20 . . . may be expressed as a percentage of the total of the previous sum insured plus bonus, or as a percentage of the original sum insured plus a different percentage of the pr eviously declared bonuses. Reversionary and terminal bonuses are determined by the insurer based on the investment performance of the invested premiums. For example, suppose an insurance is issued with sum insured $100 000.At the end of the ? rst year of the contract a bonus of 2% on the sum insured and 5% on previous bonuses is declared; in the following two years, the rates are 2. 5% and 6%. Then the total guaranteed sum insured increases each year as shown in Table 1. 1. If the policyholder dies, the total death bene? t payable would be the original sum insured plus reversionary bonuses already declared, increased by a terminal bonus if the investment returns earned on the premiums have been suf? cient. With-pro? ts contracts may be used to offer policyholders a savings element with their life insurance.However, the traditional with-pro? t contract is designed primarily for the life insurance cover, with the savings aspect a secondary feature. 1. 3. 3 Modern insurance contracts I n recent years insurers have provided more ? exible products that combine the death bene? t coverage with a signi? cant investment element, as a way of competing for policyholders’savings with other institutions, for example, banks or open-ended investment companies (e. g. mutual funds in North America, or unit trusts in the UK). Additional ?exibility also allows policyholders to purchase less insurance when their ? ances are tight, and then increase the insurance coverage when they have more money available. In this section we describe some examples of modern, ? exible insurance contracts. Universal life insurance combines investment and life insurance. The policyholder determines a premium and a level of life insurance cover. Some 1. 3 Life insurance and annuity contracts 7 of the premium is used to fund the life insurance; the remainder is paid into an investment fund. Premiums are ? exible, as long as they are suf? cient to pay for the designated sum insured under the ter m insurance part of the contract.Under variable universal life, there is a range of funds available for the policyholder to select from. Universal life is a common insurance contract in North America. Unitized with-pro? t is a UK insurance contract; it is an evolution from the conventional with-pro? t policy, designed to be more transparent than the original. Premiums are used to purchase units (shares) of an investment fund, called the with-pro? t fund. As the fund earns investment return, the shares increase in value (or more shares are issued), increasing the bene? t entitlement as reversionary bonus.The shares will not decrease in value. On death or maturity, a further terminal bonus may be payable depending on the performance of the with-pro? t fund. After some poor publicity surrounding with-pro? t business, and, by association, unitized with-pro? t business, these product designs were withdrawn from the UK and Australian markets by the early 2000s. However, they will remain i mportant for many years as many companies carry very large portfolios of with-pro? t (traditional and unitized) policies issued during the second half of the twentieth century.Equity-linked insurance has a bene? t linked to the performance of an investment fund. There are two different forms. The ? rst is where the policyholder’s premiums are invested in an open-ended investment company style account; at maturity, the bene? t is the accumulated value of the premiums. There is a guaranteed minimum death bene? t payable if the policyholder dies before the contract matures. In some cases, there is also a guaranteed minimum maturity bene? t payable. In the UK and most of Europe, these are called unit-linked policies, and they rarely carry a guaranteed maturity bene? . In Canada they are known as segregated fund policies and always carry a maturity guarantee. In the USA these contracts are called variable annuity contracts; maturity guarantees are increasingly common for these pol icies. (The use of the term ‘annuity’ for these contracts is very misleading. The bene? ts are designed with a single lump sum payout, though there may be an option to convert the lump sum to an annuity. ) The second form of equity-linked insurance is the Equity-Indexed Annuity (EIA) in the USA.Under an EIA the policyholder is guaranteed a minimum return on their premium (minus an initial expense charge). At maturity, the policyholder receives a proportion of the return on a speci? ed stock index, if that is greater than the guaranteed minimum return. EIAs are generally rather shorter in term than unit-linked products, with seven-year policies being typical; variable annuity contracts commonly 8 Introduction to life insurance have terms of twenty years or more. EIAs are much less popular with consumers than variable annuities. 1. 3. 4 Distribution methods Most people ? d insurance dauntingly complex. Brokers who connect individuals to an appropriate insurance product ha ve, since the earliest times, played an important role in the market. There is an old saying amongst actuaries that ‘insurance is sold, not bought’, which means that the role of an intermediary in persuading potential policyholders to take out an insurance policy is crucial in maintaining an adequate volume of new business. Brokers, or other ? nancial advisors, are often remunerated through a commission system. The commission would be speci? ed as a percentage of the premium paid.Typically, there is a higher percentage paid on the ? rst premium than on subsequent premiums. This is referred to as a front-end load. Some advisors may be remunerated on a ? xed fee basis, or may be employed by one or more insurance companies on a salary basis. An alternative to the broker method of selling insurance is direct marketing. Insurers may use television advertising or other telemarketing methods to sell direct to the public. The nature of the business sold by direct marketing meth ods tends to differ from the broker sold business. For example, often the sum insured is smaller.The policy may be aimed at a niche market, such as older lives concerned with insurance to cover their own funeral expenses (called pre-need insurance in the USA). Another mass marketed insurance contract is loan or credit insurance, where an insurer might cover loan or credit card payments in the event of the borrower’s death, disability or unemployment. 1. 3. 5 Underwriting It is important in modelling life insurance liabilities to consider what happens when a life insurance policy is purchased. Selling life insurance policies is a competitive business and life insurance companies (also known as life of? es) are constantly considering ways in which to change their procedures so that they can improve the service to their customers and gain a commercial advantage over their competitors. The account given below of how policies are sold covers some essential points but is necessaril y a simpli? ed version of what actually happens. For a given type of policy, say a 10-year term insurance, the life of? ce will have a schedule of premium rates. These rates will depend on the size of the policy and some other factors known as rating factors.An applicant’s risk level is assessed by asking them to complete a proposal form giving information on 1. 3 Life insurance and annuity contracts 9 relevant rating factors, generally including their age, gender, smoking habits, occupation, any dangerous hobbies, and personal and family health history. The life insurer may ask for permission to contact the applicant’s doctor to enquire about their medical history. In some cases, particularly for very large sums insured, the life insurer may require that the applicant’s health be checked by a doctor employed by the insurer.The process of collecting and evaluating this information is called underwriting. The purpose of underwriting is, ? rst, to classify potenti al policyholders into broadly homogeneous risk categories, and secondly to assess what additional premium would be appropriate for applicants whose risk factors indicate that standard premium rates would be too low. On the basis of the application and supporting medical information, potential life insurance policyholders will generally be categorized into one of the following groups: †¢ Preferred lives have very low mortality risk based on the standard infor- mation.The preferred applicant would have no recent record of smoking; no evidence of drug or alcohol abuse; no high-risk hobbies or occupations; no family history of disease known to have a strong genetic component; no adverse medical indicators such as high blood pressure or cholesterol level or body mass index. The preferred life category is common in North America, but has not yet caught on elsewhere. In other areas there is no separation of preferred and normal lives. †¢ Normal lives may have some higher rated ri sk factors than preferred lives (where this category exists), but are still insurable at standard rates.Most applicants fall into this category. †¢ Rated lives have one or more risk factors at raised levels and so are not acceptable at standard premium rates. However, they can be insured for a higher premium. An example might be someone having a family history of heart disease. These lives might be individually assessed for the appropriate additional premium to be charged. This category would also include lives with hazardous jobs or hobbies which put them at increased risk. †¢ Uninsurable lives have such signi? ant risk that the insurer will not enter an insurance contract at any price. Within the ? rst three groups, applicants would be further categorized according to the relative values of the various risk factors, with the most fundamental being age, gender and smoking status. Most applicants (around 95% for traditional life insurance) will be accepted at preferred or standard rates for the relevant risk category. Another 2–3% may be accepted at non-standard rates 10 Introduction to life insurance because of an impairment, or a dangerous occupation, leaving around 2–3% who ill be refused insurance. The rigour of the underwriting process will depend on the type of insurance being purchased, on the sum insured and on the distribution process of the insurance company. Term insurance is generally more strictly underwritten than whole life insurance, as the risk taken by the insurer is greater. Under whole life insurance, the payment of the sum insured is certain, the uncertainty is in the timing. Under, say, 10-year term insurance, it is assumed that the majority of contracts will expire with no death bene? t paid.If the underwriting is not strict there is a risk of adverse selection by policyholders – that is, that very high-risk individuals will buy insurance in disproportionate numbers, leading to excessive losses. Since high sum insured contracts carry more risk than low sum insured, high sums insured would generally trigger more rigorous underwriting. The marketing method also affects the level of underwriting. Often, direct marketed contracts are sold with relatively low bene? t levels, and with the attraction that no medical evidence will be sought beyond a standard questionnaire.The insurer may assume relatively heavy mortality for these lives to compensate for potential adverse selection. By keeping the underwriting relatively light, the expenses of writing new business can be kept low, which is an attraction for high-volume, low sum insured contracts. It is interesting to note that with no third party medical evidence the insurer is placing a lot of weight on the veracity of the policyholder. Insurers have a phrase for this – that both insurer and policyholder may assume ‘utmost good faith’ or ‘uberrima ? es’ on the part of the other side of the contract. In practi ce, in the event of the death of the insured life, the insurer may investigate whether any pertinent information was withheld from the application. If it appears that the policyholder held back information, or submitted false or misleading information, the insurer may not pay the full sum insured. 1. 3. 6 Premiums A life insurance policy may involve a single premium, payable at the outset of the contract, or a regular series of premiums payable provided the policyholder survives, perhaps with a ? ed end date. In traditional contracts the regular premium is generally a level amount throughout the term of the contract; in more modern contracts the premium might be variable, at the policyholder’s discretion for investment products such as equity-linked insurance, or at the insurer’s discretion for certain types of term insurance. Regular premiums may be paid annually, semi-annually, quarterly, monthly or weekly. Monthly premiums are common as it is convenient for policyho lders to have their outgoings payable with approximately the same frequency as their income. . 3 Life insurance and annuity contracts 11 An important feature of all premiums is that they are paid at the start of each period. Suppose a policyholder contracts to pay annual premiums for a 10-year insurance contract. The premiums will be paid at the start of the contract, and then at the start of each subsequent year provided the policyholder is alive. So, if we count time in years from t = 0 at the start of the contract, the ? rst premium is paid at t = 0, the second is paid at t = 1, and so on, to the tenth premium paid at t = 9.Similarly, if the premiums are monthly, then the ? rst monthly instalment will be paid at t = 0, and the ? nal premium will be paid at the start 11 of the ? nal month at t = 9 12 years. (Throughout this book we assume that all 1 months are equal in length, at 12 years. ) 1. 3. 7 Life annuities Annuity contracts offer a regular series of payments. When an annui ty depends on the survival of the recipient, it is called a ‘life annuity’. The recipient is called an annuitant. If the annuity continues until the death of the annuitant, it is called a whole life annuity.If the annuity is paid for some maximum period, provided the annuitant survives that period, it is called a term life annuity. Annuities are often purchased by older lives to provide income in retirement. Buying a whole life annuity guarantees that the income will not run out before the annuitant dies. Single Premium Deferred Annuity (SPDA) Under an SPDA contract, the policyholder pays a single premium in return for an annuity which commences payment at some future, speci? ed date. The annuity is ‘life contingent’, by which we mean the annuity is paid only if the policyholder survives to the payment dates.If the policyholder dies before the annuity commences, there may be a death bene? t due. If the policyholder dies soon after the annuity commences, the re may be some minimum payment period, called the guarantee period, and the balance would be paid to the policyholder’s estate. Single Premium Immediate Annuity (SPIA) This contract is the same as the SPDA, except that the annuity commences as soon as the contract is effected. This might, for example, be used to convert a lump sum retirement bene? t into a life annuity to supplement a pension.As with the SPDA, there may be a guarantee period applying in the event of the early death of the annuitant. Regular Premium Deferred Annuity (RPDA) The RPDA offers a deferred life annuity with premiums paid through the deferred period. It is otherwise the same as the SPDA. Joint life annuity A joint life annuity is issued on two lives, typically a married couple. The annuity (which may be single premium or regular 12 Introduction to life insurance premium, immediate or deferred) continues while both lives survive, and ceases on the ? rst death of the couple.Last survivor annuity A last survivor annuity is similar to the joint life annuity, except that payment continues while at least one of the lives survives, and ceases on the second death of the couple. Reversionary annuity A reversionary annuity is contingent on two lives, usually a couple. One is designated as the annuitant, and one the insured. No annuity bene? t is paid while the insured life survives. On the death of the insured life, if the annuitant is still alive, the annuitant receives an annuity for the remainder of his or her life. 1. Other insurance contracts The insurance and annuity contracts described above are all contingent on death or survival. There are other life contingent risks, in particular involving shortterm or long-term disability. These are known as morbidity risks. Income protection insurance When a person becomes sick and cannot work, their income will, eventually, be affected. For someone in regular employment, the employer may cover salary for a period, but if the sickness continu es the salary will be decreased, and ultimately will stop being paid at all. For someone who is elf-employed, the effects of sickness on income will be immediate. Income protection policies replace at least some income during periods of sickness. They usually cease at retirement age. Critical illness insurance Some serious illnesses can cause signi? cant expense at the onset of the illness. The patient may have to leave employment, or alter their home, or incur severe medical expenses. Critical illness insurance pays a bene? t on diagnosis of one of a number of severe conditions, such as certain cancers or heart disease. The bene? t is usually in the form of a lump sum.Long-term care insurance This is purchased to cover the costs of care in old age, when the insured life is unable to continue living independently. The bene? t would be in the form of the long-term care costs, so is an annuity bene? t. 1. 5 Pension bene? ts Many actuaries work in the area of pension plan design, valua tion and risk management. The pension plan is usually sponsored by an employer. Pension plans typically offer employees (also called pension plan members) either lump 1. 5 Pension bene? ts 13 sums or annuity bene? ts or both on retirement, or deferred lump sum or annuity bene? s (or both) on earlier withdrawal. Some offer a lump sum bene? t if the employee dies while still employed. The bene? ts therefore depend on the survival and employment status of the member, and are quite similar in nature to life insurance bene? ts – that is, they involve investment of contributions long into the future to pay for future life contingent bene? ts. 1. 5. 1 De? ned bene? t and de? ned contribution pensions De? ned Bene? t (DB) pensions offer retirement income based on service and salary with an employer, using a de? ned formula to determine the pension.For example, suppose an employee reaches retirement age with n years of service (i. e. membership of the pension plan), and with pensionab le salary averaging S in, say, the ? nal three years of employment. A typical ? nal salary plan might offer an annual pension at retirement of B = Sn? , where ? is called the accrual rate, and is usually around 1%–2%. The formula may be interpreted as a pension bene? t of, say, 2% of the ? nal average salary for each year of service. The de? ned bene? t is funded by contributions paid by the employer and (usually) the employee over the working lifetime of the employee.The contributions are invested, and the accumulated contributions must be enough, on average, to pay the pensions when they become due. De? ned Contribution (DC) pensions work more like a bank account. The employee and employer pay a predetermined contribution (usually a ? xed percentage of salary) into a fund, and the fund earns interest. When the employee leaves or retires, the proceeds are available to provide income throughout retirement. In the UK most of the proceeds must be converted to an annuity.In the USA and Canada there are more options – the pensioner may draw funds to live on without necessarily purchasing an annuity from an insurance company. 1. 5. 2 De? ned bene? t pension design The age retirement pension described in the section above de? nes the pension payable from retirement in a standard ? nal salary plan. Career average salary plans are also common in some jurisdictions, where the bene? t formula is the same as the ? nal salary formula above, except that the average salary over the employee’s entire career is used in place of the ? nal salary. Many employees leave their jobs before they retire.A typical withdrawal bene? t would be a pension based on the same formula as the age retirement bene? t, but with the start date deferred until the employee reaches the normal retirement age. Employees may have the option of taking a lump sum with the 14 Introduction to life insurance same value as the deferred pension, which can be invested in the pension plan of the new employer. Some pension plans also offer death-in-service bene? ts, for employees who die during their period of employment. Such bene? ts might include a lump sum, often based on salary and sometimes service, as well as a pension for the employee’s spouse. . 6 Mutual and proprietary insurers A mutual insurance company is one that has no shareholders. The insurer is owned by the with-pro? t policyholders. All pro? ts are distributed to the with-pro? t policyholders through dividends or bonuses. A proprietary insurance company has shareholders, and usually has withpro? t policyholders as well. The participating policyholders are not owners, but have a speci? ed right to some of the pro? ts. Thus, in a proprietary insurer, the pro? ts must be shared in some predetermined proportion, between the shareholders and the with-pro? t policyholders.Many early life insurance companies were formed as mutual companies. More recently, in the UK, Canada and the USA, there has been a trend towards demutualization, which means the transition of a mutual company to a proprietary company, through issuing shares (or cash) to the with-pro? t policyholders. Although it would appear that a mutual insurer would have marketing advantages, as participating policyholders receive all the pro? ts and other bene? ts of ownership, the advantages cited by companies who have demutualized include increased ability to raise capital, clearer corporate structure and improved ef? iency. 1. 7 Typical problems We are concerned in this book with developing the mathematical models and techniques used by actuaries working in life insurance and pensions. The primary responsibility of the life insurance actuary is to maintain the solvency and pro? tability of the insurer. Premiums must be suf? cient to pay bene? ts; the assets held must be suf? cient to pay the contingent liabilities; bonuses to policyholders should be fair. Consider, for example, a whole life insurance contract issued to a life aged 50. The sum insured may not be paid for 30 years or more.The premiums paid over the period will be invested by the insurer to earn signi? cant interest; the accumulated premiums must be suf? cient to pay the bene? ts, on average. To ensure this, the actuary needs to model the survival probabilities of the policyholder, the investment returns likely to be earned and the expenses likely 1. 9 Exercises 15 to be incurred in maintaining the policy. The actuary may take into consideration the probability that the policyholder decides to terminate the contract early. The actuary may also consider the pro? tability requirements for the contract.Then, when all of these factors have been modelled, they must be combined to set a premium. Each year or so, the actuary must determine how much money the insurer or pension plan should hold to ensure that future liabilities will be covered with adequately high probability. This is called the valuation process. For with-pro? t insurance, the actuary must determine a suitable level of bonus. The problems are rather more complex if the insurance also covers morbidity risk, or involves several lives. All of these topics are covered in the following chapters.The actuary may also be involved in decisions about how the premiums are invested. It is vitally important that the insurer remains solvent, as the contracts are very long-term and insurers are responsible for protecting the ? nancial security of the general public. The way the underlying investments are selected can increase or mitigate the risk of insolvency. The precise selection of investments to manage the risk is particularly important where the contracts involve ? nancial guarantees. The pensions actuary working with de? ned bene? t pensions must determine appropriate contribution rates to meet the bene? s promised, using models that allow for the working patterns of the employees. Sometimes, the employer may want to change the bene? t structure, and the actu ary is responsible for assessing the cost and impact. When one company with a pension plan takes over another, the actuary must assist with determining the best way to allocate the assets from the two plans, and perhaps how to merge the bene? ts. 1. 8 Notes and further reading A number of essays describing actuarial practice can be found in Renn (ed. ) (1998). This book also provides both historical and more contemporary contexts for life contingencies.The original papers of Graunt and Halley are available online (and any search engine will ? nd them). Anyone interested in the history of probability and actuarial science will ? nd these interesting, and remarkably modern. 1. 9 Exercises Exercise 1. 1 Why do insurers generally require evidence of health from a person applying for life insurance but not for an annuity? 16 Introduction to life insurance Exercise 1. 2 Explain why an insurer might demand more rigorous evidence of a prospective policyholder’s health status for a te rm insurance than for a whole life insurance. Exercise 1. Explain why premiums are payable in advance, so that the ? rst premium is due now rather than in one year’s time. Exercise 1. 4 Lenders offering mortgages to home owners may require the borrower to purchase life insurance to cover the outstanding loan on the death of the borrower, even though the mortgaged property is the loan collateral. (a) Explain why the lender might require term insurance in this circumstance. (b) Describe how this term insurance might differ from the standard term insurance described in Section 1. 3. 2. (c) Can you see any problems with lenders demanding term insurance from borrowers?Exercise 1. 5 Describe the difference between a cash bonus and a reversionary bonus for with-pro? t whole life insurance. What are the advantages and disadvantages of each for (a) the insurer and (b) the policyholder? Exercise 1. 6 It is common for insurers to design whole life contracts with premiums payable only up to age 80. Why? Exercise 1. 7 Andrew is retired. He has no pension, but has capital of $500 000. He is considering the following options for using the money: (a) Purchase an annuity from an insurance company that will pay a level amount for the rest of his life. b) Purchase an annuity from an insurance company that will pay an amount that increases with the cost of living for the rest of his life. (c) Purchase a 20-year annuity certain. (d) Invest the capital and live on the interest income. (e) Invest the capital and draw $40 000 per year to live on. What are the advantages and disadvantages of each option? 2 Survival models 2. 1 Summary In this chapter we represent the future lifetime of an individual as a random variable, and show how probabilities of death or survival can be calculated under this framework.We then de? ne an important quantity known as the force of mortality, introduce some actuarial notation, and discuss some properties of the distribution of future lifetime. W e introduce the curtate future lifetime random variable. This is a function of the future lifetime random variable which represents the number of complete years of future life. We explain why this function is useful and derive its probability function. 2. 2 The future lifetime random variable In Chapter 1 we saw that many insurance policies provide a bene? t on the death of the policyholder.When an insurance company issues such a policy, the policyholder’s date of death is unknown, so the insurer does not know exactly when the death bene? t will be payable. In order to estimate the time at which a death bene? t is payable, the insurer needs a model of human mortality, from which probabilities of death at particular ages can be calculated, and this is the topic of this chapter. We start with some notation. Let (x) denote a life aged x, where x ? 0. The death of (x) can occur at any age greater than x, and we model the future lifetime of (x) by a continuous random variable whic h we denote by Tx .This means that x + Tx represents the age-at-death random variable for (x). Let Fx be the distribution function of Tx , so that Fx (t) = Pr[Tx ? t]. Then Fx (t) represents the probability that (x) does not survive beyond age x + t, and we refer to Fx as the lifetime distribution from age x. In many life 17 18 Survival models insurance problems we are interested in the probability of survival rather than death, and so we de? ne Sx as Sx (t) = 1 ? Fx (t) = Pr[Tx > t]. Thus, Sx (t) represents the probability that (x) survives for at least t years, and Sx is known as the survival function. Given our interpretation of the ollection of random variables {Tx }x? 0 as the future lifetimes of individuals, we need a connection between any pair of them. To see this, consider T0 and Tx for a particular individual who is now aged