Study Notes and Published References - Note ASP 1 - REDETERMINATION OF NON-GUARANTEED CHARGES AND/OR BENEFITS FOR LIFE INS AND ANNUITY CONSIDERATIONS
Background
- std related to advice actuary gives to client co in connection with (re)determination of non-guar charges and for benefits for life and annuity contracts
- std applies to inforce and NB
- does not apply to PO divs
- use of non-guar elements grown dramatcially, but little standardizatoin in benefit design, pricing structure, mktg practices and inv philosophies
- Emphasis of Std
- set forth areas of inquiry and analysis the actuary should cover in developing advice
- outline areas wehre actuary should describe main elements of advice and reasons therefore
- need a redetermination policy for block fo business
- this polcy (an selection of mktg and financial objectives associated w/ it) is a company mgmt decision that provides framework within which the actuary must operate
- actuarial report should include
- recommended info to enable mgmt to make informed decision
- description of framework advice developed within
- description of co's redetermination policy
- description of facts, methods, procedures, assumptions upon which advice based
- description of ony special operating practices that affect/could affect repricing actions
Current Practices and Alternatives
- An evolving type of business
- for some I/S products, int rate guarantees must be subject to review weekly
- unless co's relevant policy changed, actuary would not be asked to formally advise in redetermination process
- whenever redetermination process is changed, expected that actuarial advise sought adn report made
- buy could be shorter report w/ lots of references to prev report
- Client's Policy - redetermination policy and the selectoin of solvency margins, mktg, and potential profit objectives assoc w/ policy are co mgmt decisions
Standard of Practice
- Analysis of Issues and Recommended Practices
- Company's Policy Taken Into Acct - integral element in developing advice
- if co has incomplete policy, actuary should describe addition assumptions necessary to develop advice
- Accumulated Losses or Gains - the extent to which accum g/l will be allowed to affect teh redetermination
- specific provision for recover of past losses or distribution of past gains is a possible element of co's policy
- recovery of acq expense through annual amortization is not considered recovery of past losses
- be aware of any regulatory restrictions
- Special Operating Practices - description of variations
- ex. special u/w rules and an indication if mort exp for this block s/b analysed separately
- any restriction by type of investment and/or A/L matching standards s/b applied
- if investments supporting this block are
- segmented w/in general acct
- combined w/ other assets but w/ sep ID by year of investment
- comingled on a portfolio basis
- include risks involved w/ deviations from these special factors
- Contract Classes
- a contrac class should remain intact until all contracts matured
- assignment to a class s/not be based on (non)occurrence of a claim on that contract
- class consists of contracts that are
- of a similar type
- same structre of guar/nonguar charges/benefits
- based on same anticipated experience factors
- issued over continuous time period
- similar mktg objectives
- Contract Factors and Anticipated Experience Factors
- Contract Factors - valued defined in teh contract or values emerging from the operation of its terms
- Anticipated Experience Factors - elements in the redetermination of non-guarcharges and benefits that reflect expected future experience
- "expected/anticipated" - as determined by actuary through application of sound professional judgement
- s/b based on recent expereince and expected trends in experience for
- factor clas
- similar classes of business
- same co
- other co
- other sources
- in this order of preference
- Modeling adn Averaging
- possible that signficantly diff levels and incidence of prem payments will emerge w/in class
- there s/b reflected in redetermining charges/benefits - by modeling or appropriate averaging of classification of contracts
- Impact of Life Deviations from Anticipated Experience
- actuary should furnish ifo as to impact of likely deviations in experience from that anticipated
- cover degree of variation that migh reasonably occur
- effect these variation would have on likely attainment of co's several goals
- if any variations could have sizable impact, actuary should include a report any changes in operating practices or product design which might alleviate or obviate these potential effects
- Sensitivity Testing
- on potential impact o flikely deviations in expereince that may have material effect
- Application of Regulations
- take into account jurisdictional regulations when developing advice
- Communications and Disclosures
- Actuarial Report - should include
- Description of Clients Policy
- disclose area in which policy is judged incomplete and describe any additional assumptions made
- Description of Special Operating Practices
- Description of Contract Classes
- if any changes in assignment of contracts to these contract classes, report should indentify how assignment changed and reasons for change
- Identification of Contract Factors
- if approximations or projected measures of contract factors used, describe basis of measures used
- Description of Experience Factors
- all changes in teh values of anticipated experience factors from loast redetermination
- Descriptoin of Processes adn Methods
- significant modeling or averaging used
- manner contract factors and anticipated experience factors used
- Reporting on Specific Charges or Benfits for the Period
- present advised non-guar charges/benefits
- if changed
- identify
- indicate amt of change
- describe reasons
- Stating Degree of Conformity w/ Co's Policy
- and degree which actuary expects them to meed co's solvency, profits, and mktg objectives
- Disclosures on Sensitivity Tests
- descriptoin of any tests
- summary of results
- advice re: changes in operating practices or product design to avoid/minimize impact of any likely variations that have materially adverse consequences
- if no testing, reasons why
- Description of Regulatory Requirements and Interpolations
- any applicable reg requirements
- incl any explicit approvals necessary
- if any significant interpretive questions,
- decribe these adn actuary's interpretation and conclusions
- Deviation From Std
- statement w/r to nature, rationale, and effect of deviating from ASP
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