Grading

  • Where were the people that wanted to do that when we were going through the process.
    • Folks, we've been talking about this for a year.
      • We have taken input from anyone and everyone.
    • If we had any sense that we could have had ten-year projections only, if we had any sense that we could have graded interest rates and that it would have gotten any support, believe me, we would have done it.
    • Where were you people when we were developing the model?

--  Thomas C. Foley, North Dakota, Regulator/ Actuary

1995 - SOA - Sales Illustrations, Society of Actuaries - 14p

  • Daphne Bartlett - California Actuary:
    • ... suggested grading in the interest rate over a period of time to standardized assumptions.
    • ... said that this would be an appropriate substitute for the sensitivity index. 
    • ... saw several advantages.
      • It eliminated the portfolio versus new money problem because one could grade down, and the other might need to grade up.
    • ...said the numbers generated by the illustration would be more realistic...
    • ...said this would minimize the need for in-force illustrations.

1995-1, NAIC Proceedings

  • Actuaries did use interest assumptions in pricing their product, often as aggressive as 6 1/2%, which were graded to an actuarially responsible 4% or so.

--  Stanley B. Tulin

1981 - SOA - Asset Management for an Insurance Company, Society of Actuaries - 14p

  • Mr. Morgan also asked what percentage a field agent was allowed to use in an illustration and Mr. Nelson responded that it could not be larger than what was currently being paid, but in a declining market that may not be a valid projection of future results.  (p251)

1993-1, NAIC Proceedings

  • Mr. Morgan - Noel Morgan (Ohio)
  • Mr. Nelson - an insurance agent from Nebraska who is chair of the National Association of Life Underwriters Sales Illustrations Task Force (NALU)
  • The actuary should have the freedom, and the responsibility, to establish cash values that resemble real asset shares.
  • In my experience, minimum values during the first t policy years, grading to the reserve at duration n, have worked well, yet the Report dismisses this approach on the grounds (p. 36 of the Report) that it would not comply with the proposed segmentation methodology.
  • Let’s not mess up the cash values; let’s scrap the proposal.

1980 09- SOA - TEKEL (Dan. 5:27) - by David H. Raymond, the Actuary, Society of Actuaries - 8p

⇒  [Bonk: TEKEL = .biblegateway.com/verse/en/Daniel%205:27 - NIV - New International Version - Tekel: You have been weighed on the scales and found wanting.

  • 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. 

  • Non-guaranteed Premium
    • On the other hand, at Transamerica Life Insurance and Annuity Company, our pension affiliate, the current premiums are priced using a level interest assumption, rather than the more normal assumptions that interest rates will decline.
    • For most of the products on the market, the current premiums are guaranteed not to be raised for a period of any where from one to six years from issue.
    • During this period when the current premiums are guaranteed, deficiency reserves would have to be set up based on the current premiums. 

-- Denise F. Roeder, Occidental

1980 - SOA - Non-Participaring Life Products with Non-Guaranteed Premiums (rsa80v6n32), Society of Actuaries - 22p

  • 26 Mr. E. J. Moorhead, writing in Best's Review, points out the problem facing the actuary in attempting to develop a competitive non-par product:
    • [A]ctuaries attempting to calculate nonpar premiums that will be competitive with illustrated prices of participating policies are faced with a problem that has no satisfactory solution. The actuary, concerned as he must be with company solvency and prosperity, dares not assume in his calculations that high investment yields will continue for many future years even though he usually is personally convinced that continuing inflation will produce that result.
    • Hence, he calculates nonpar premiums by allowing for high interest rates in the early years (when it really makes little difference what interest rate he assumes); and he grades the assumed interest rate downward in later policy years (when the policy reserve will have reached a size that makes even small interest rate differences of material consequence).
    • In the past. several years during which this observer has been publicly pointing·this out, no actuary experienced in nonpar premium calculation has risen to dispute its validity. ·

Moorhead, "Doomsday Just· Ahead for Life Insurance? Not Necessarily!" Best's Review, 10, 12 (August, 1977). [hereinafter cited as Moorhead]  (p188) - <WishList>

1979 0710 and 1017 - GOV (Senate) - FTC Study of Life Insurance Cost Disclosure, Howard Cannon (D-NV)  ---  [BonkNote] 

  • All these methods are based one way or another on the ancient truth that the present value of benefits, expenses, and margins must equal the present value of premiums.
    • When one considers the interest assumption, it must be remembered that rates are presently very high but may be showing signs of leveling off.
    • It seems inconceivable in view of the past that interest rates will stay at their present levels for a long period of time.
  • If the interest assumption in the early policy years is taken as the rate on new investments, the actuary should allow for the possibility of a reduction after the first few policy years and provide for a more conservative rate at the later policy durations.

--  Samuel P. Adams

1960 - SOA - Premiums and Dividends for Individual Ordinary Insurance, Society of Actuaries - 30p