Actuarial Outpost > Life cash value rate table
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#1
10-26-2017, 01:58 PM
 Report Member Join Date: Apr 2011 Posts: 50
cash value rate table

This might be a stupid question but I thought cash surrender values were determined simply by whatever the accumulated fund value was in the policy as calculated by the administration system at the time of surrender, less any applicable surrender charge.

Fund value would be calculated as (premium - expenses - coi) and accumulated with interest. The cash value calculation seems straight-forward enough to not need a table of cash value rates.

Why would an actual cash value rate table be needed for a life insurance product as opposed to just programming the fund components into a system that will do the fund calculation for you automatically? Is it from the pre-computer era?
#2
10-26-2017, 02:09 PM
 Hydraskull Member Join Date: Jun 2008 Location: Svalbard Studying for life Favorite beer: Six Point Resin Posts: 6,436

Quote:
 Originally Posted by Report This might be a stupid question but I thought cash surrender values were determined simply by whatever the accumulated fund value was in the policy as calculated by the administration system at the time of surrender, less any applicable surrender charge. Fund value would be calculated as (premium - expenses - coi) and accumulated with interest. The cash value calculation seems straight-forward enough to not need a table of cash value rates. Why would an actual cash value rate table be needed for a life insurance product as opposed to just programming the fund components into a system that will do the fund calculation for you automatically? Is it from the pre-computer era?
The mechanism you've described where AV = (premium - expenses - coi) accumulated with interest, and cash value is AV less surrender charges, applies to UL-type policies.

Whole life type policies don't work this way. The cash value growth pattern is locked in at issue. Premiums aren't flexible - either you pay the premium and your cash value grows according to the table, or you don't pay the premium and your policy lapses (this is a bit of a simplification but is generally how it works).

These products don't have a surrender charge schedule or other explicit charges... all the charges are baked into the cash value table.

Yes this is a bit of a throwback to the pre-computer era where products were priced using commutation functions and so it was necessary to have fixed cash flows for the commutation functions to work.
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 Originally Posted by Abraham Weishaus Only Hydraskull knows what he's talking about. Retracted below.
#3
10-26-2017, 04:20 PM
 Chuck Member SOA AAA Join Date: Oct 2001 Location: Illinois Posts: 4,653

In theory, you could calculate non-UL life cash values "somewhat" like UL policies (with modifications for rounding, per unit calcs, implied "unusual" expense factors, and annual vs monthly calcs/interpolation not related to the exact timing of when premiums are paid, etc), but it actually would not be very efficient to do so administratively based on the way these cash values are contractually defined (creating many redundant calculations on a large inforce block of business).
#4
10-26-2017, 07:14 PM
 Breadmaker Member SOA Join Date: May 2009 Studying for CPD - and nuttin' else! College: Swigmore U Favorite beer: Guinness Posts: 4,434

Commutation functions??? CSV tables??? Now I feel oooooooooold!!!!
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#5
10-26-2017, 07:27 PM
 Hydraskull Member Join Date: Jun 2008 Location: Svalbard Studying for life Favorite beer: Six Point Resin Posts: 6,436

Quote:
 Originally Posted by Breadmaker Commutation functions??? CSV tables??? Now I feel oooooooooold!!!!
I'm under 40, but having worked for insurance companies that have been around for a century plus, you get exposed to some pretty ancient stuff.

As recently as the late 2000s, I worked with Job Control Language in which statements start with /, a throwback to when punch cards were used in programming.

A few times when I needed access to the system as of a prior date, they had to physically restore it FROM TAPE.
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Quote:
 Originally Posted by Abraham Weishaus Only Hydraskull knows what he's talking about. Retracted below.
#6
10-26-2017, 07:49 PM
 JMO Carol Marler Non-Actuary Join Date: Sep 2001 Location: Back home again in Indiana Studying for Nothing actuarial. Posts: 37,643

Life insurance policies can stay in effect for a very long time. Companies are forced to keep a lot of obsolete methodology in place - it's the nature of the business.
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#7
10-26-2017, 08:46 PM
 Breadmaker Member SOA Join Date: May 2009 Studying for CPD - and nuttin' else! College: Swigmore U Favorite beer: Guinness Posts: 4,434

Quote:
 Originally Posted by Hydraskull I'm under 40, but having worked for insurance companies that have been around for a century plus, you get exposed to some pretty ancient stuff. As recently as the late 2000s, I worked with Job Control Language in which statements start with /, a throwback to when punch cards were used in programming. A few times when I needed access to the system as of a prior date, they had to physically restore it FROM TAPE.

I remember having to teach myself some COBOL!!!
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#8
10-27-2017, 07:56 AM
 Report Member Join Date: Apr 2011 Posts: 50

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#9
10-27-2017, 10:23 PM
 wat? Member SOA AAA Join Date: May 2004 Location: Hi Studying for beer Favorite beer: Fresh Squeezed IPA Posts: 33,256

There's also the tabular cash values to consider. If your guarantees are always in excess of what is required in the Standard Nonforfeiture Law, then it's not a concern, but I would imagine you have to demonstrate that by going through the process and determining the tabular cash values, based on the SNFL.
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