Product & Development Section, Issue 77, June 2010
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Product Development Section Product ! ISSUE 77 | JUNE 2010 1 A Brief Look at the Phase 1 Survey Results From the SOA/RGA A Brief Look at the Phase 1 Survey Post-Level Term Research Project By Tim Rozar and Scott Rushing Results From the SOA/RGA Post-Level 3 Chairperson’s Corner: Term Research Project “What’s on Your Mind?” By John Currier By Tim Rozar and Scott Rushing 8 Interactions Between Dynamic Lapses and Interest Rates in The SOA’s Product Development Section Council and Committee on Life Insurance Stochastic Modeling Research engaged RGA to research the magnitude and impact of the “shock lapse” at the By Yuhong Xue end of the level premium period. This has become an extremely important assumption both for new business pricing and for modeling in-force business. As a result, we have tried to 13 A Look Ahead to the Fall Society of develop a comprehensive and highly relevant industry study of post-level term assumptions, Actuaries Meeting practices and experience results. By Tom Phillips and Mitchell Katcher The project was broken into two phases: 15 Universal Life and Indexed UL Trends • Phase 1 was a survey of the mortality and lapse assumptions used by actuaries for pricing By Susan J. Saip and modeling term products. • Phase 2 was a study of mortality and lapse experience from companies with term poli- 19 NAIC Update – March 2010 Meeting cies beyond the end of the level period. By Donna R. Claire This article will summarize the results from the Phase 1 Survey. A copy of the complete sur- 23 SOA International Experience vey report can be found at http://soa.org/research/life/research-post-level.aspx. Responses Survey—Embedded Value Financial Assumptions were received from 41 companies responsible for approximately 63 percent of 2008 term Charles Carroll, William Horbatt, and sales. The survey questions asked companies to describe pricing assumptions and product Dominique Lebel design characteristics for their term products issued as of the end of 2008. CONTINUED ON PAGE 4 Product ! ISSUE 77 | JUNE 2010 Published by the Product 2010 Section Leadership SOA Staff Development Section of the Society John Currier, Chairperson Sam Phillips, Staff Editor of Actuaries Mitchell Katcher, Vice Chairperson e: [email protected] Sue Saip, Secretary/Treasurer This newsletter is free to section members. Christopher Daniels, Council Member Mike Boot, Staff Partner Current-year issues are available from the Christina Goodrich, Council Member e: [email protected] communications department. Back issues Donna Megregian, Council Member of section newsletters have been placed in Paul Pflieger, Council Member Christy Cook, Project Support Specialist the SOA library and on the SOA Web site Tom Phillips, Council Member e: [email protected] (www.soa.org). Photocopies of back issues Lisa Renetzky, Council Member may be requested for a nominal fee. Allen Klein, Board Partner Julissa Sweeney, Graphic Designer e: [email protected] Copyright © 2010 Society of Actuaries. All rights reserved. Printed in the United Editors States of America Christie Goodrich, Co-Editor p: (515) 283-3488 e: [email protected] Paul Fedchak, Co-Editor p: (317) 524-3537 e: [email protected] Facts and opinions contained herein are the sole responsibility of the persons expressing them and shall not be attributed to the Society of Actuaries, its committees, the Product Development Section or the employers of the authors. We will promptly correct errors brought to our attention. Articles Needed for the Next Issue of Product Matters! While all articles are welcome, we would especially like to receive articles on topics that would be of interest to Product Development Section members based outside of the United States. Please e-mail your articles to Christie Goodrich or Paul Fedchak by July 27, 2010. 2 | JUNE 2010 | Product Matters! Chairperson’s Corner:“What’s on Your Mind?” By John Currier s you read this article some of you are trying to catch up in the office after recently returning from the first an- nual Life and Annuity Symposium in Tampa, some are wondering what to do with your children all summer A now that school is out (or nearly so for those hit with multiple snow days this past winter), some are gearing up for second-quarter end financial reporting, some are thinking about ways to sneak in a few hours of outdoors activity now that the weather has turned, and we are all thinking about how to make the Product Development Section more relevant to us. Hold on, I can hear you saying, I get that we are transitioning to summer and that means lots of new thoughts, but John you’ve lost it if you think I’m spending any time thinking about the Product Development Section. John Currier, FSA, MAAA, is EVP, Chief Actuary for It may seem a stretch, but the fact you are reading these words tells me that you look to the Society of Actuaries and the Aviva USA. He can be Product Development Section for valuable information—that you are looking for that nugget that is relevant to what contacted at you are doing in your working life. [email protected] The Product Development Section is working to provide those nuggets to you—based on what you’ve told us is im- portant to do. Many of you responded to our survey of what is most important to you and your council is acting on that feedback. • The session topics at the Life and Annuity Symposium were tested against the topics you said you were interested in. • The post-symposium seminars were built on topics you mentioned. • This newsletter contains an article from an author who identified their willingness to provide content in that survey. • We are pursuing articles for future editions from others identified in the survey. • Webinar content is being developed based on your topics. • 2010 Annual meeting content is being developed to match the survey requests. • Some who expressed interest in the council are now assisting in other ways or will be seeking election in the coming months. You can see that your council is working hard to provide “mining opportunities”—opportunities for relevance. If you take the time, I know that nugget is there for you—but if we are not meeting your needs, this is your Section after all, do let us know and find a way to get involved in the life of the Section—we need each and every one of you to make us the best we can be. Enjoy this edition of Product Matters, have a wonderful summer, and I look forward to seeing you at the Annual Meeting. Since you’ve read this far I know the Product Development Section is on your mind! Product Matters! | JUNE 2010 | 3 A Brief Look at the Phase 1 Survey … | FROM PAGE 1 Product Design For 10-year level term, 33 of 41 respondents (80 percent) A number of survey questions were asked about the struc- provided a shock lapse assumption of less than 100 per- ture and design of term products. The specific questions cent. Of these companies, 31 also provided a shock lapse and responses can be found in the full survey report. The assumption of less than 100 percent for their 20-year term following high level observations can be made: product. Here are a few of the highlights: • An immediate jump to an annually increasing • The median shock lapse assumption was 80 percent in premium scale following the level period is by far duration 10 for a common T10 pricing cell and 82 per- Tim Rozar, FSA, the most common term design. A small number of cent in duration 20 for a common T20 pricing cell. MAAA, CERA, is VP respondents described products where the premiums • The median cumulative lapse rate assumption for dura- & actuary for RGA , entered a new level period or graded into an ultimate tions 10 through 14 was 90 percent for T10. For T20, the Chesterfield, Mo. He ART scale. median cumulative lapse rate for durations 20 through can be contacted at • Premiums after the level period were typically set 24 was 92 percent. [email protected]. between 200 percent and 300 percent of 2001 CSO • For T10, duration 11 lapse assumptions were generally Ultimate (often exactly 200 percent or 300 percent). lower than the duration 10 shock lapse, although a few As illustrated in the survey report, this represents a respondents provided assumptions in duration 11 that very large jump in the premium amount compared to were higher than duration 10. We expect that this could the level period. be attributable to differences in how companies are • We asked about the differences between current pre- calculating termination dates with regard to the grace mium rates and guaranteed rates after the end of the period. The same patterns could be seen for the assump- level period. The responses were split fairly evenly tions provided for other level periods. between products where the currents were set below • Six respondents adjusted their assumptions for the tim- the guarantees, products where the currents were ing of off-anniversary lapses beyond the level premium set equal to the guarantees, and products with only a period. Preliminary findings from the Phase 2 experi- guaranteed premium scale. ence study suggest that the timing of lapses in duration • Premium rates normally varied by risk class and face 11 is skewed more toward the beginning of the policy Scott Rushing, FSA, amount band during the level period, but not during year than it is during the level period. This could have MAA, is an actuary for the post-level period.