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  • in reply to: Material Change to trigger Guideline reduction #4849
    Chuck Ritzke
    Participant

    I know of no exception to a reduction in benefits causing a reduction in the guidelines, even if caused by a withdrawal (although I could have missed it without more in-depth reading of LIME and the regs, etc).

    Also FYI, I think that for purposes of the tax regs, “material change” definition is limited to increases in benefits., so you probably don’t want to use that term in this context.

     

    in reply to: Cash Value vs Reserve #1678
    Chuck Ritzke
    Participant

    Not entirely sure what you’re asking spefically…

    Purpose? = Cash value intended to provide a fair value to surrendering policyholder. Reserve intended to define the amount(s) company must “reserve” to ensure they’re able to pay future benefits. Of course, that’s all an oversimplification.

    Method of Calculation? – Is at a high level, often much the same but with different assumptions (if we’re talking about the traditional seriatim net reserve values per policy and not company level reserves based on cash flow testing and PBR, etc). Interest earning and expense allowance assumptions are generally more conservative for reserves (ie lower). Also you said “whole life” and not “universal life”. The latter has methods that vary from traditional. And as referenced parenthetically above, reserves are often calculated at the company (or line of business) level because the purpose is ensuring the company can pay future benefits.

    Assumptions? – Generally (see purposes above as to why – also often somewhat prescribed by regulations) may differ (mortality, interest, expense allowances).

     

    Hope this helps.

    in reply to: Mortality Improvement (GI & SI products) #1337
    Chuck Ritzke
    Participant

    Still spit-balling – I definitely could be wrong…

    But I’m thinking, based on the big bump in mortality rates often observed in the first 3-5 years, that the anti-selectors are more so critical/terminal than chronic illness. The latter I’d agree could be materially affected by mortality improvement. My thinking is that the causes of mortality improvement (short of some major cure for cancer, etc) is generally something that more so emerges gradually over time and primarily affects people before or at the early stages of illness or even “pre-illness” compared to somebody who is at the later stages of disease. Of course there would be some improvement (eg drugs that extend life, etc). But I’m guessing that improvement comes more from avoiding illnesses and early detection more so than curing/treating them at critical stages.

    My “overwhelming” thought is due to the size of the big bump in early years.  Even if non-anti-selectors have improvement, it is overwhelmed when measuring early year claims as a % of total mortality rates. The good news (if your company sells enough to be credible) is that you may be able to detect improvement in the early years as you study early year mortality. If not credible, maybe your reinsurers have opinions on that.

    in reply to: Mortality Improvement (GI & SI products) #1330
    Chuck Ritzke
    Participant

    With the caveat that I’m spit-balling ideas here, my thought on the out years goes like this.

    When you think about GI sales, I think it generally consists of a group of initial “anti-selectors” that effect early year mortality and (a hopefully larger group of ) reasonable risks. I think in the early years the anti-selection overwhelms any possible mortality improvement. If less-than-healthy people have the opportunity to anti-select, they most likely will (which is why marketing/distribution is so important). But the further out you go, you are probably left with (or at least approach) the relatively “normal” risks, maybe somewhat less than population mortality.

    So my thought is that they are probably reasonably subject somewhat to population mortality improvement. So not additional improvement, but just population improvement. Not sure how much the mortality in the out years has on profitability though without modeling it. A lot of the inforce is gone by then.

    You also want to consider your renewal lapse rate experience. High lapse rates implies more anti-selection.

    in reply to: Mortality Improvement (GI & SI products) #1309
    Chuck Ritzke
    Participant

    I think the difficulty in developing/using mortality improvement factors for GI is that GI mortality is likely very different from company to company (more so than underwritten) because things like variations in anti-selection probably highly overshadow any general improvements in mortality. Anti-selection is dependent upon how you market/distribute the product, your level of control over how it’s sold, the volume of business, where leads come from, etc. Maybe you could reflect meaningful improvements in the (far) out years, but probably not so much in the early years.

    That said (while I haven’t looked), maybe you could get some general idea from limited underwriting tables that the SOA publishes, if you can find tables developed from different eras and compare. Another source could be your reinsurers.

    in reply to: Nonforfeiture Rate Changes #914
    Chuck Ritzke
    Participant

    For plans that have cash values that need to change (or maybe surrender charges on a UL contract), I’d review the Statement of Variability (SOV) in the state (or compact) where it was filed. If the company reserved the right to change the rates/values without restriction, then you can probably make changes without re-filing. However, some states will have explicitly asked for you to file a new actuarial memo or maybe new sample schedule pages. In any case, I’d recommend preparing those things and having them ready to file if ever requested.

    Similarly, many forms of term insurance may require a re-demonstration to prove cash values are not required. Again, states may not require the filing, but I would recommend having such demonstrations prepared and ready just in case.

    If you want more definitive answers, you can contact the insurance dept or compact. (We often do that anonymously for carriers).

    I don’t think reserve interest rates are required (from a product filing standpoint). Of course, your valuation actuary has different requirements from a valuation reporting standpoint.

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