Assumptions

Assumptions lie at the heart of actuarial work.

2017 - The Great Assumptions Debate, American Academy of Actuaries
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MR. WILCOX: I think you're right, Walter, in a significant respect.

  • The fact is that a minority would be inclined to make those overly aggressive assumptions and produce unsupportable illustrations,...
  • ...but every time one company would take that stand and use assumptions for the illustration that don't make sense, there's another company that competes with them and feels compelled to play in the same ball park and then another company that competes with them.
  • In the absence of regulation on those who would be most aggressive, the problem grows, but your point is well taken.

1996 - CURRENT DEVELOPMENTS SURROUNDING REGULATIONS  AND STANDARDS OF LIFE AND ANNUITY PRODUCTS, Society of Actuaries - [PDF -18p]

Assumptions (also Actuarial Assumptions)

Definition - An actuarial assumption is an estimate of an uncertain variable input into a financial model, normally for the purposes of calculating premiums or benefits.

https://actuarialtoolkit.soa.org/tool/glossary/assumptions-also-actuarial-assumptions

  • Commissioner Robert Hunter (Texas) asked if the assumptions being discussed in Section V of the standards paper would be disclosed in the policy.
  • Commissioner Wilcox responded that they did not need to be disclosed in the same manner that they would be disclosed to an actuary, but that some information would be required.

1994-3, NAIC Proceedings

2. Standardized Assumptions

  • Tony Higgins (N.C.) asked the working group to consider projections into the future for only a few years of the non-guaranteed elements, and then projections further into the future of standardized assumptions or guarantees.
  • Mr. Wright said this allows a company to show how its policy works without the problem of projections of non-guaranteed elements far into the future.
  • Lester Dunlap (La.) also expressed interest in the idea of standardized assumptions to show how the policy works. He said projections far into the future can border on misrepresentation
  • Current assumptions are critical to interest sensitive products such as Universal Life.
  • When interest rates are high, benefit projections (such as cash value) are also high.
  • When interest rates are low, these projections are not as attractive.

dfs.ny.gov/consumers/life_insurance/types_of_policies

 “….provide illustrations based on different assumptions. This would serve to demonstrate to the consumer the effect on future benefits of changes in assumptions.”

-- STATEMENT ON BEHALF OF <ACLI> THE AMERICAN COUNCIL OF LIFE INSURANCE TO THE NAIC MARKET CONDUCT SURVEILLANCE (EX3) TASK FORCE, June 13, 1988

1988-2, NAIC Proceedings

2. Standardized Assumptions

 

  • Tony Higgins (N.C.) asked the working group to consider projections into the future for only a few years of the non-guaranteed elements, and then projections further into the future of standardized assumptions or guarantees.
  • Mr. Wright said this allows a company to show how its policy works without the problem of projections of non-guaranteed elements far into the future.
  • Lester Dunlap (La.) also expressed interest in the idea of standardized assumptions to show how the policy works.
    • He said projections far into the future can border on misrepresentation.

1994-3. NAIC Proc. 

"It is unlikely that the question of the proper assumptions will ever be acceptable to all insurers on a voluntary basis."

--  ROBERT G. BRAUND

1969 - Life Insurance Net Cost Comparisons, Society of Actuaries

2. When the product was launched, SEC ruled that one was allowed to illustrate a variable life product assuming a growth rate of only 8 percent in the underlying funds.

The resulting cash values were not much better than the old participating product.

When Monarch Life filed their prospectus, they managed to persuade the SEC that 8 percent was out of date and that 12 percent should be used.

Everybody used 12 percent, and the resulting variable product values were much better than those under the traditional participating product.

--  MICHAEL R. TUOHY

1985 - VARIABLE UNIVERSAL LIFE INSURANCE, Society of Actuaries - 22p

It is possible that five per cent might be safely assumed, but there were a great many contingencies about this business, and gentlemen differ as to the rate of interest which can be received in the future, and the assumption in the life insurance calculations is that this money is perpetually invested.
HON. WILLIAM BARNES

1881-1, NAIC Proc (FKA National Insurance Convention)