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Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Annuity Experience Studies
March 12, 2013
Ingrid Guttin FSA, MAAA
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
• Company Background
• Annuity Experience Needs
• Annuity Experience Methodology
• Dynamic Annuity Environment
• Challenge: Annuity Lapses
Agenda
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
• Affiliated Companies
• History
• Multiple Locations
• Sammons Annuity Group
• Annuity Inforce = $25B
Company Background
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Annuity Experience Needs
WithdrawalsLapses
MortalityPremiums
Policyholder BehaviorAgent BehaviorRider Utilization
Product Development ALM/Modeling
Valuation Business Management
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
TrendingModeling Methodology
User NeedsExternal Factors
Annuity Experience MethodologyCredibility
Historical Data is the easy part…
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Dynamic Annuity Environment
GLWB
FIA with MVA
Premium Bonus
Rates based on Barclays U.S. Long Credit Index
?
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Challenge: Annuity Lapses
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Surrender Value/Account Value
Bonus InfluencePolicyholder Perspective
Focus Group
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Thank You!
Ingrid Guttin FSA, [email protected]
March 12th, 2013
Experience Studies
Michael Chen, FCAS MAAA
Experience Studies
Property & Casualty Insurance
The goal of a ratemaking analysis is to set the rates such that the premium charged will be appropriate to cover the losses and expenses while achieving the targeted profit for policies that will be written during a future time period. Premium = Losses + Loss Adjustment Expenses + Underwriting Expenses + Underwriting Profit.
Note:Source: CAS Basic Ratemaking Manual
Experience Studies
How do we as Actuaries accomplish this goal?
There are two basic approaches for determining an overall rate level need:
1. Pure premium methodThe pure premium method determines an indicated average rate, not an indicated change to the current average rate. The pure premium method is generally used to determine rates of a new product where there is not internal historical experience.
2. Loss ratio methodThe loss ratio method is the more widely used of the two rate level indication approaches. The loss ratio method compares the estimated percentage of each premium dollar needed to cover future losses, loss adjustment expenses, and other fixed expenses to the amount of each premium dollar that is available to pay for such costs.
Experience Studies
Rate Indication Example:
(1) (2) (3) (4) (5) (6)
Accident Total Projected Projected IndicatedYear Adjusted Ultimate Loss Rate
Ending Premium Losses Ratio Weights Change12/31/2008 3,000,000 2,000,000 66.7% 0.100 11.1%12/31/2009 8,000,000 5,000,000 62.5% 0.150 4.2%12/31/2010 12,000,000 7,000,000 58.3% 0.200 -2.8%12/31/2011 14,000,000 9,000,000 64.3% 0.250 7.1%12/31/2012 15,000,000 9,500,000 63.3% 0.300 5.6%
Total 52,000,000 32,500,000 62.5% 4.2%Weighted 62.8% 4.6%
Permissible Loss Ratio = 60.0%
Indicated Rate Change = ( Projected Loss Ratio / Permissible Loss Ratio ) -1
Experience Studies
Rate Indication – Premium Adjustments
Adjustment of Premium to Current Rates
•Parallelogram Method
•Extension of Exposures
Premium Trend
•Company’s Own Trends
•Industry Trend [Insurance Services Office (ISO), National Council on Compensation Insurance (NCCI), etc.]
•Other Sources (Bureau of Labor and Statistics, fitting distributions)
Other Premium Adjustments
•Basic Limits Indications
•?
Experience Studies
Rate Indication – Loss Adjustments
Loss Development
• Loss Development based on Case Incurred Loss Development Method
• Loss Development from other methods example: Bornhuetter-Ferguson method
Loss Trend
• Company’s Own Trends
• Industry Trend (Fast Track, ISO, NCCI, etc.)
• Other Sources (Bureau of Labor and Statistics, fitting distributions, ?)
Large Loss Adjustments
Storm (Catastrophic) Loss Adjustments
Experience Studies
Rate Indication – Other Adjustments / Assumptions Credibility Standard
Complement of Credibility
Annual Weights
• Example of possible alternative to (10%, 15%, 20%, 25%, 30%) weights
Other Adjustments?
(1) (2) (3) (4)
Accident Year % Distribution of AdjustedEnding Weights Total Premium Weights
12/31/2008 10.0% 5.8% 2.5%=(10.0% * 5.8%) / 22.9%12/31/2009 15.0% 15.4% 10.1%12/31/2010 20.0% 23.1% 20.2%12/31/2011 25.0% 26.9% 29.4%12/31/2012 30.0% 28.8% 37.8%
Total 100.0% 100.0% 100.0%
Sumproduct of column (2) & (3) 22.9%
Experience Studies
Besides changing rates to the full indicated rate change, what other initiatives may be used to effect the overall rate level?
Underwriting
Claims
Expenses
Other
Experience Studies
Glen Reineke, FSA MAAA FRM
March 12th, 2013
Experience Studies
Life & Annuity
Mortality (including a Cause of Death)
Premium Persistency (Flexible Premium Universal Life)
Surrender (and involuntary Lapse),
• including modifications for Dynamic Surrender formula
Partial Withdrawal (and Policy Loan Utilization)
Other policyholder characteristics
• Rider utilization
• Investment Type of activities
Experience Study & Assumptions Setting Process
The root of the question: What should we assume in the future?
While there are other purposes, this is my primary focus.
One approach: Take a look at the past and adjust accordingly (Actual to Expected = A/E ratios)
Assumption Setting Must be coordinated with modeling efforts
Even if you create the “best” (most accurate) assumption possible, you must be able to implement it in your actuarial projection models.
If your model can’t implement it, have you really accomplished your objective?
For example, financial credit scores (and other 3rd party data obtained through Predictive Modeling) may provide excellent insight in to surrender behavior … but may not be implementable in to your actuarial projection models.
Assumptions Setting
Is the past always the best predictor of the future?
Could it ever lead you in the wrong direction?
Must ask yourself if the past really is the best indicator of YOUR company’s future. Are there any “outliers” that should be thrown-out?
One example of modifying past experienceLife Mortality Improvement modification example:
If your company has recently adopted a mortality improvement assumption, you may want to modify your experience study to reflect your newest outlook on mortality.
Contact Information:
Glen Reineke, FSA MAAA FRM
Vice President – Product Reporting