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Old 06-05-2018, 09:44 PM
umich umich is offline
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Default VM-22 Reference Period for Deferred Income Annuities

I'm working on the modeling of VM-22 for our company's payout annuities and trying to understand how reference period for Life Contingent contracts is calculated. The definition from NAIC says:

For contracts, certificates, or contract features with life contingencies and substantially similar payments, the reference period is the length of time, rounded to the nearest year, from the premium determination date to the earlier of: i) the date of the last non-life-contingent payment under the contract, certificate or contract feature; and ii) the date of the first life-contingent payment under the contract, certificate or contract feature.

Also, Contacts with installment refunds or similar features should consider the length of the installment period
calculated from issue as the non-life contingent period for the purpose of determining the reference period.


My question is more specific to DIAs with different DB options:

For a DIA with an installment refund death benefit option, I think the reference period according to the above definitions, would be the period of time from premium determination date to end of the guaranteed installment period, since guaranteed installment refunds are considered non-LC here.

But for a DIA with a lump-sum refund DB option, what would the reference period be?

My thoughts:
Since a lump sum DB is paid upon death, it is life contingent. So does the reference period equal:

1) zero? because there is no non-LC component here so the last non-LC payment does not exist. Here I kinda assumed if it doesn't exist, it's 0 and thus earlier of the 2.
2) the deferral period? because that's the period of time between premium determination to first LC payment. Here I was assuming if it doesn't exist, it shouldn't be compared to.
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Old 06-05-2018, 10:10 PM
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Additional detail from VM-22, Sec 2D, under def of "Reference Period": (added emphasis)

Quote:
Guidance Note: The definition of Reference Period assumes a series of material, substantially similar payments and materiality is relative to the life-contingent payments. If the payments are not substantially similar, the actuary should apply prudent judgment and select the Valuation Rate Bucket with Macaulay duration that is a best fit to the Macaulay duration of the payments in question.
It seems like for a DIA with a lump-sum DB, you could add the accumulation period + the certain period upon annuitization, if applicable, for the reference period, since the definition of a reference period assumes that a stream of payments is to be made. However, couldn't this be constructed more like a DIA + term?
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Last edited by wat?; 06-05-2018 at 10:14 PM..
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Old 06-06-2018, 12:35 AM
umich umich is offline
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Quote:
Originally Posted by wat? View Post
Additional detail from VM-22, Sec 2D, under def of "Reference Period": (added emphasis)



It seems like for a DIA with a lump-sum DB, you could add the accumulation period + the certain period upon annuitization, if applicable, for the reference period, since the definition of a reference period assumes that a stream of payments is to be made. However, couldn't this be constructed more like a DIA + term?
My understanding is that VM-22 only applies to single premium income annuities so there wonít be accumulation and annuitization. The reference period always starts at the premium determination date (which is usually the contract issue date), but Iím not sure where it ends for a DIA with a lump-sum cash refund DB.
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