1 / 9

The Representative Scenarios Method (RSM) Field Test Phase 1: Fixed Annuities

Dive into the Field Test Phase 1 of the Representative Scenarios Method (RSM) focusing on fixed annuities with guaranteed living benefits, comparative reserve levels, lessons learned, and insights for future application to other insurance products.

lmillard
Download Presentation

The Representative Scenarios Method (RSM) Field Test Phase 1: Fixed Annuities

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Representative Scenarios Method (RSM)Field Test Phase 1:Fixed Annuities Slides prepared by Steve Strommen, FSA, CERA, MAAA Blufftop LLC March, 2015

  2. Outline of field test phase 1: • Motivation: • Some belief that reserves under CARVM are overly conservative for GLIBs • Purpose: • Test the application of RSM and formulaic floors to blocks of recently issued fixed annuities with GLIBs. • Participants: • Two companies with blocks of annuities • Consultants to carry out the modeling and reserving • Kansas (Mark Birdsall) as manager and coordinator

  3. Characteristics of business modeled • Both Company A and Company B sell fixed indexed annuities with GLIBs. • Significant differences in the generousness of guaranteed benefits (strength of guarantees) • Company B’s business includes more generous GLIB levels, making GLIBs more likely to be in-the-money.

  4. Reserve methodology tested • Two-part formulaic floor reserve • Floor 1 excludes “listed benefits” like GLIBS • Floor 2 reflects election of the “listed benefits” • Modeled reserve using the Representative Scenarios Method (RSM)

  5. Comparative reserve levels$millions

  6. Comparative margins in modeled reserves$millions

  7. Lessons learned in phase 1 • RSM produced modeled reserves in the same ballpark as full stochastic modeling • May need to separate “investment returns” into two separate risk drivers (interest rates and equity returns) • Aggregate margin under the cost of capital method is larger than under the percentile method for a new block of business with many years before expiry.

  8. Other lessons learned in phase 1 • Projection of capital to calculate cost of capital • Should be in proportion to PV of remaining benefit-only cash flows (exclude future premium cash flows) • Monthly sum indexing • Sensitive to scenario volatility • Little volatility within each RSM scenario • Results not representative unless “monthly sum” indexing is simulated as “annual point-to-point”

  9. Next steps – phase 2 • Phase 2 involves study of RSM application to other products using a case-study approach • Variable annuities with listed benefits • Level premium term life insurance • Universal life insurance with secondary guarantees • Long term care insurance • RSM discussion being split into two separable issues: • General methodology • Identification of risk drivers and their distributions • Form of the aggregate margin • Cost of capital or percentile will both be studied

More Related