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Tim CardinalFSA, MAAA, CERA,
MBA
Getting Ready For PBRMarch 23, 2016
Chicago Actuarial Association
He JiangResearch Assistant
University Of Illinois
It’s “Official”> 42 States, 75% Premium
pendingsubstantially similar
What’s NEW ???
Bypass product exclusion testsPremium thresholdRBC thresholdNo material ULSGsReserve methodology = CRVMReporting requirements
Companywide Exemption
SET ratio is now 6.0% (Stochastic Exclusion Test)Use of company’s Asset Adequacy models to
calculate ratios
SET
4% FloorNonforfeiture rate ≥ 4%
To comply with Internal Revenue Code
Deterministic ReservePermitted alternative methodology
Direct Iteration Method
Mortality Tables2017 CSO2015 VBT
Clarification of deferred premium assetClarifications to policy loan cash flowsPre-tax IMRMortgage risk classificationsInvestment spreadsMortality marginsUnderwriting Criteria ScoreOther
Other & Updates
https://www.soa.org/files/research/exp-study/2015-mipbr-report.pdf Published June 2015, conducted ~ June 2014 53 respondents - 15 expected to be exempt
Overview/Awareness SOA PBA Implementation Guide
29 aware, 8 familiar withhttps://www.soa.org/Files/Research/Projects/research-2013-pba-implementation-guide.pdf ASOPs
26/30/33 had read exposed PBR for Life Products / exposed Modeling / Credibility ASOPs
Timeframe: 12-24 months from beginning steps to implement 13% / 34% had informed Board / Senior Management of increased
responsibilities under PBR
SOA-NAIC Survey
Resources Nearly all believe system updates are needed to implement PBR
30% / 40% substantial updates needed to pricing / valuation 26/30/33 had read exposed PBR for Life Products / exposed Modeling /
Credibility ASOPs Majority anticipated a moderate increase in staffing, reallocation of
existing staffing, and/or increased use of consultants and software 16% / 0 % had had developed training plans for actuarial / non-actuarial
staff in preparation for implementing PBR 28 /15 anticipated purchasing software / using home grown Majority had NOT determined cost of implementation/ongoing costs
Survey Highlights
Mortality Assumption Setting and Modeling Most anticipated changes to assumption setting process
Credibility, documentation, margin setting and approval Most indicated completing mortality studies at least annually
Somewhat prepared to complete studies to extent required by PBR More than half had NOT determined any of the pieces needed to
perform the process needed to calculate VM-20 mortality Only half reported modeling documentation was adequate
Survey Highlights
Survey HighlightsProduct Development Implications Fair amount of uncertainty re: PBR impact on product offerings Very few had discussed design/pricing implications with sales & marketing < 40% had started discussions between pricing and valuation
Resources I
Resources II
20 Year Level TermART renewal Face = $1 millionIssued to male age 40 nonsmokerPost-level gross premium is valuation mortality, year 21 gross premium = $4,970
Valuation Basis 2017 CSO M/F S/NS ALB Ultimate 5% semicontinuous, annual mean reserveFirst year valuation benefit cost = $1,425 Any deviations from these parameters are provided just in time with the experiment description.
Term NPR Lab Policy
A few excerpts from:Voyager m2Lab
PBA Training I: Overview and TermTerm Net Premium Reserve (NPR) Exploration Lab
Copyright © 2015 Actuarial Compass LLC. All Rights Reserved
Part II
So your intuition would say it looks like this...
And as we raise our level period Gross Premium we would expect….?
600
1,100
1,600
2,100
2,600
3,100
5 10 15 20 25
NPR(in $ by Policy Year)
NPR is just like Triple X, just a smaller hump. Right?
We compare 7 trial results using gross premiums: $300, $400, $500, $600, $700, $800, and $900. No other variables are being changed.
Hypothesis1. Terminal reserves for the 7 trials will ____ (in order of trials 1 to 7).
(A) be equal (B) increase (C) decrease (D) increase then decrease (E) decrease then increase
NPR Experiment 1 - Initial Premium
NPR Experiment 1 - Initial Premium
600
1,100
1,600
2,100
2,600
3,100
5 10 15 20 25
NPR(in $ by Policy Year)
300 400 500 600 700 800 900Half cx
This experiment varies the initial level period gross premium. We compare 4 trial results using gross premiums: $600, $1,200, $1,800, and $2,400. No other variables are being changed. Hypotheses1. Terminal reserves for the 4 trials will ___ (in order of trials 1 to 4).
(A) be equal (B) increase (C) decrease (D) increase then decrease (E) decrease then increase
NPR Experiment 2 - Initial Premium Part II
600
1,100
1,600
2,100
2,600
3,100
3,600
4,100
5 10 15 20 25
NPR(in $ by Policy Year)
600
1,200
1,800
2,400
NPR Experiment 2 - Initial Premium Part II
60%
70%
80%
90%
100%
110%
120%
130%
140%
150%
160%
5 10 15 20
NPR Ratio To (Trial 600)(in % by Policy Year)
600
1,200
1,800
2,400
NPR Experiment 2 - Initial Premium Part II
We compare 7 trial results using different gross premiums: $2,025, $2,050, $2,075, $2,100, $2,125, $2,150, and $2,175. No other variables are being changed. Hypotheses1. Terminal reserves for the 7 trials will ___ (in order of trials 1 to 7).
(A) be equal (B) increase (C) decrease (D) increase then decrease (E) decrease then increase
3. The maximum $2,175 NPR over all policy years is _________ the maximum $2,025 NPR.
(A) 75%-85% (B) 100% (C) 105%-115% (D) 140%-150%
Homework: NPR Experiment 3 - Initial Premium Part III
DR Experiment 2 - Bühlmann Credibility Factor
Hypotheses1. For the 10 year block in policy years 3-8, (trial 94-95%’s NPR+DPA) /
(trial 83-87%’s NPR+DPA) is in the range _______.(A) 0-5% (B) 5-10% (C) 10-15% (D) 15%+
3. For the 10&20 year block, the number of years using a credibility factor of 28-32% instead of 93-100% increases the minimum reserve is in the range _______.
(A) 1-3 (B) 4-6 (C) 7-9 (D) 10-12
Experiments 2 explores mortality margins and credibility factors using the Bühlmann credibility method. We compare 11 trials. No other variables are being changed. Margins vary by attained age. The margins at ages 0-45 for the trials are:
0
200
400
600
800
1,000
1,200
1,400
1,600
1 3 5 7 9
DR+DPA and NPR(in $ by Policy Year)
33-37% 48-52% 58-62% 68-72%
78-82% 83-87% 90-91% 92-93%
94-95% 96-97% 98% NPR
Bühlmann Credibility Factor – 10 Year Term
40%
60%
80%
100%
120%
140%
160%
180%
1 3 5 7 9
DR+DPA: Trial N / Trial 83-87%(in % by Policy Year)
33-37% 48-52% 58-62% 68-72% 78-82% 83-87% 90-91% 92-93% 94-95% 96-97% 98%
Bühlmann Credibility Factor – 10 Year Term
0
1,000
2,000
3,000
4,000
5,000
6,000
1 3 5 7 9 11 13 15 17 19
DR+DPA and NPR(in $ by Policy Year)
33-37% 48-52% 58-62% 68-72% 78-82% 83-87% 90-91% 92-93% 94-95% 96-97% 98% NPR
Bühlmann Credibility Factor – 10&20 Year Term
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1 3 5 7 9 11 13 15 17 19
DR+DPA and NPR(in $ by Policy Year)
33-37% 48-52% 58-62% 68-72% 78-82% 83-87% 90-91% 92-93% 94-95% 96-97% 98% NPR
20 Year Term
90%
91%
92%
93%
94%
95%
96%
97%
98%
99%
100%
1 3 5 7 9 11 13 15 17 19
DR+DPA: Trial N+1 / Trial N(in % by Policy Year)
33-37% 48-52% 58-62% 68-72% 78-82% 83-87% 90-91% 92-93% 94-95% 96-97% 98%
Bühlmann Credibility Factor – 10&20 Year Term
Part III: Discussion TopicsAssumption Setting and InputModels and UsesOutputGovernance / RegulatoryPBA Strategy / Planning
