Illustrations - Expectations

  •  Robert E. Wilcox, Utah Insurance Commissioner and Chairman of the Life Disclosure Working Group (NAIC) - If the policyholders' expectations are built around the concept that they are going to get a fair dividend, and that fair dividend means that, if the interest rate goes up, policyholders get more, and if rates go down, they get less, and if that is their expectation, there should be a high likelihood we will be able to meet it.
    • I think we need to adjust their expectations so that their expectations are something that we can meet.
    • If we say we are not going to have a high likelihood of meeting policyholder expectations, then we are promising the wrong things.
    • I am using promising in the broader sense now rather than the specific guaranteed sense.
  •   George Coleman, Prudential, ACLI, TRG-Technical Resource Group for the NAIC (Industry Advisory Group - Illustrations) - To the extent that standards can address that, then I think we are pointing in the right direction.
    • I think with appropriate standards we can assure that a lot of the puff is taken out of some of these illustrations. 

1994 - SOA - Problems and Solutions for Product Illustrations, Society of Actuaries - 28p

  • These are examples of a transgression of the definition, as I've defined it.
  • The Academy committee reporting on the work about annuity illustrations lists as the first supportability objective, "Ensure that information provided by the company creates consumer expectations for nonguaranteed elements that are not unreasonable." - <WishList>
    • Now, I could have stated that better: "As does not create unreasonable expectations."
    • But better still, I'm not sure that illustrations should be creating any expectations other than that there will be something above the guarantee.
    • I don't believe an illustration should create any expectation because that will only get you in trouble, and it detracts from the understanding of what an illustration is and is not.
      • An illustration does not show what you can expect.
  • This is the corker, I think.
  • There was a recent article in Contingency called, "Was Leo Tolstoy an illustration actuary?" - <WishList>
    • It was very disappointing to me, although I liked the catchy title.
    • It speaks of an illustration as a picture of how a policy is expected to perform over the next several years.
    • It talks of a ledger predicting miraculous performance.
    • It speaks of assumptions having no relation to the real world.
  • All this in an actuarial journal.
  • I have written to the editor.  --- I haven't heard from him yet.
  • These statements are at odds with our simple definition, and only add to the confusion abounding on the subject.

--  William H. Phillips

⇒  Contingencies is published bimonthly by the American Academy of Actuaries

1998 - SOA - Current Issues in Sales Illustrations, Society of Actuaries - 26p