Analysis of Term Life Insurance Reserves Using the Full Preliminary Term and Fackler Method with an Extended Vasicek Interest Rate Based on Ordinary Least Square

Aldila Nur Indah Berliana Ratam; Marisa Marisa

doi:10.30598/parameterv5i2pp287-300

Aldila Nur Indah Berliana Ratam Institut Teknologi Sumatera
Marisa Marisa Institut Teknologi Sumatera

DOI: https://doi.org/10.30598/parameterv5i2pp287-300

Keywords: Fackler, Full Preliminary Term, Extended Vasicek, Ordinary Least Squares, Life Insurance Reserves

Abstract

Premium reserves have an essential role in maintaining financial sustainability and risk control in life insurance companies. This study aims to analyze the calculation of premium reserves for term life insurance products using the Full Preliminary Term (FPT) and the Fackler method. The FPT method has a relatively large acquisition cost at the beginning of the policy year, whereas Fackler applies long premium payments and generates different reserve patterns. Interest rate analysis uses the Extended Vasicek model, with parameter estimation via Ordinary Least Squares (OLS) based on Bank Indonesia interest rate data (BI rate) for 2010 – 2025. The results show that the FPT method generates more stable reserves at the beginning of the coverage period. In contrast, the Fackler method forms reserves more evenly throughout the premium payment period. The interest rates obtained from the Extended Vasicek model are relevant and can be applied in actuarial calculation practices. The data-based approach and statistical methods used in this study are expected to contribute both theoretically and practically, especially for actuaries and risk managers in decision-making related to the management of long-term liabilities in the life insurance industry.

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