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 - 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.
Risks to Buyer
- If assumptions change adversely investment performance can affect satisfaction of long-term goals and cash value can be lower than with Traditional products. (p99)
1987 - Life Insurance, Huebner, Black, Skipper
- Fixed contracts have assumptions locked in at issue unless a loss is expected, while flexible contracts like universal life and deferred annuities adjust (unlock) based on actual historical results and current expectations of the future. (p33)
2014 - Sustained Low Interest Rate Environment: Can It Continue? Why It Matters, Society of Actuaries - p
More importantly for permanent plans, the actuary can utilize a realistic interest rate for future years.
- How many actuaries would feel comfortable assuming a 9% interest rate over the next 20 years, if the premium rates were guaranteed?
- However, in many companies, this interest assumption
may be quite reasonable for a product where premiums are not guaranteed.
- Typically, a much lower interest rate is utilized for traditional nonpar products.
- For example, an actuary may currently use 8% for 5 years, grading to 6% at the end of 20 years.
- The premium rates developed using a 9% interest rate are going to be considerably lower for all permanent plans of insurance.
-- RICHARD A. SWIFT
1980 - NON-PARTICIPATING LIFE PRODUCTS WITH NON-GUARANTEED PREMUIMS, Society of Actuaries - 22p
- 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
- Technical resource advisors <Industry Advisory Group> pointed out that vanishing premium illustrations should include an explanation that premiums only vanish if assumptions reflected in the illustration continue unchanged into the future.
- The advisors did not favor disclosure of the assumptions underlying policy performance because they were so complex.
They were concerned about being able to explain, in an understandable way, the multitude of assumptions with a bearing on policy performance.
1993-1, NAIC Proceedings
- Dynamic policyholder behavior assumptions include lapses, annuitization, partial withdrawals, loans and funding persistency.
- For all these types of assumptions, it is difficult to obtain experience data.
2003 - SOA - Applied Modeling Concepts - 21p
- 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.
- ….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
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)