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Old 01-25-2018, 10:31 PM
rhoucag rhoucag is offline
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Default AG43 when WB becomes a payout

Let's say during an AG43 CTE or SS loop, a policy with a GMWB runs out of account value, so the payments start monthly for life. For both CTE and SS, I assume the monthly payments are just discounted at whatever mortality and interest rate are effective in that loop? Or would you revert to an AG9/payout situation?

Also, what if a VA is very close to this AV=0 situation with a GMWB rider? What would the SS typically produce? I'm assuming a PV monthly payments since the starting amount is close to zero?

When the AV does run out, most admin systems and/or reserve systems would categorize this as a payout annuity like a supplementary contract. So the reserve becomes AG9 or stat and FAS60 for GAAP ? Seems like a possible profit/loss time when reserving methods change.
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Old 01-26-2018, 10:32 AM
Olrich Olrich is offline
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Old 01-26-2018, 11:31 AM
Steve Grondin Steve Grondin is offline
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Quote:
Originally Posted by rhoucag View Post
Let's say during an AG43 CTE or SS loop, a policy with a GMWB runs out of account value, so the payments start monthly for life. For both CTE and SS, I assume the monthly payments are just discounted at whatever mortality and interest rate are effective in that loop? Or would you revert to an AG9/payout situation?
Inside the AG43 CTE valuation loop, there is a Working Reserve, not a first principles stat reserve subject to AG9 CARVM. Some people model the cash flows as they come due monthly, some model by using a PV of future payments at the time of exhaustion. The disconnect between the two relates to the discount rate assumed in both choices, since rates likely evolve differently over time than they would be at the time of exhaustion. And perhaps the actuary has an opinion that the prudent estimate of mortality rates differs between contracts with and without fund value. The choices also could affect the amount/timing of the Scenario GPV.
Quote:
Originally Posted by rhoucag View Post
Also, what if a VA is very close to this AV=0 situation with a GMWB rider? What would the SS typically produce? I'm assuming a PV monthly payments since the starting amount is close to zero?
AG43 Std Scen is max(BAR + max(GPVNAR-hedges -agg reins,0),CSV). Lim as AV -> 0 on BAR and CSV is 0. In the absence of hedges or aggregate reinsurance, it is the GPVNAR, which is margins less gte benefits. Margins -> 0 as AV -> 0, gte benefits are monthly payments. So, yes, PV at Std Scen mortality and rates in the absence of hedges and agg reins.
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Originally Posted by rhoucag View Post
When the AV does run out, most admin systems and/or reserve systems would categorize this as a payout annuity like a supplementary contract. So the reserve becomes AG9 or stat and FAS60 for GAAP ? Seems like a possible profit/loss time when reserving methods change.
Yes, if there are disconnects between prescribed assumptions in stat.
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