Day-Zero Incidence Model

Unlike standard industry tables that slice incidence by Elimination Period to measure payable claims, this engine models the pure biological onset of disability at Day 0.

Contractual Cashflow Gating

The Elimination Period acts strictly as a contractual cashflow gate rather than a lookup parameter. Granular early-duration termination rates naturally resolve short-term claims before benefits are paid.

Multi-State Seriatim Projection

The CashflowProjector simulates month-by-month transitions for each individual policy, dynamically projecting premiums and claims based on the specific policyholder's contract features.

Statutory Valuation

The StatutoryReserveValuator discounts the projected future cashflows back to the valuation date to calculate the Active Life Reserve (ALR) and Disabled Life Reserve (DLR).

Duration-Based Valuation (Demo)

To streamline the demonstration, this engine performs a fixed duration-based valuation rather than a calendar-based one. The Active Life Reserve (ALR) is extracted at a fixed projection duration (Policy Month 12) for all policies in the portfolio, simulating a theoretical pricing reserve rather than calculating elapsed months from individual issue dates to a specific financial reporting quarter.

Integrated Asset-Liability Management (ALM)

The AlmEngine aggregates the 360-month net liability cash flows (claims minus premiums) generated by the actuarial projection and matches them against a portfolio of fixed-rate assets. It calculates Present Value, Macaulay/Modified Duration, and overall Duration Gap, enabling real-time stress testing (e.g., +200bps yield shocks) to quantify interest rate risk on portfolio equity.

Duration Metrics & Interest Rate Risk

The ALM engine calculates both Macaulay and Modified duration as intermediate steps, but it evaluates portfolio sensitivity and computes the final Duration Gap using Modified Duration.

• Macaulay Duration: Measures time—the weighted average number of years required to recover the present value of the cash flows.
• Modified Duration: Measures price sensitivity—the expected percentage change in the portfolio's present value for a 1% shift in the yield curve.

Interpreting the Duration Gap

• Positive (+ve) Gap: Asset duration exceeds liability duration. If interest rates rise, asset values will drop faster than liability obligations, eroding net equity.
• Negative (-ve) Gap: Liability duration exceeds asset duration. If interest rates fall, the present value of liability obligations will rise faster than asset values, eroding net equity.