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Research

Research Studies–Proposal Requests

Credibility Theory Practices

1. BACKGROUND

The application of credibility theory can involve the practice of setting future assumptions by assessing past experience and considering it with current expectations. Under a principle–based approach for statutory minimum reserves and RBC that is currently under development by the NAIC, individual company experience will be used to determine the proper level of reserves and capital. The application of credibility theory will likely be required in order for actuaries to determine and evaluate the appropriateness of assumptions such as mortality and lapse levels for a company's block of business. To successfully apply the theory, an actuary will need a good understanding of available credibility methods, their uses and limitations.

2. PURPOSE

The purpose of this project is to create reference material to assist practicing actuaries in understanding and applying credibility theory, especially as it may be used in a principle–based framework.

3. RESEARCH OBJECTIVE

This project is composed of three parts:

The objective for part one is to conduct a company survey of U.S. life insurers on how they are currently using credibility theory. This survey should incorporate both credibility methods being used and associated processes for adjusting and limiting use of data.

The objective for part two is to perform a literature review to identify credibility approaches in use in Canada and other countries outside of the U.S.

Two common approaches used in industry practice are Bayesian and Limitation Fluctuation. The objective for part three is a statistical analysis of these approaches to credibility theory including a comparison of the two approaches using sample datasets for both mortality and lapse.

Research results will be summarized in a report suitable for publication.

The Researcher(s) will work closely with a Project Oversight Group (POG) to meet study objectives. The POG will review research deliverables and provide management, oversight and direction for the project.

4. PROPOSAL

To facilitate the evaluation of proposals, the following information should also be submitted:

1. Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education, and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
2. An outline of the approach to be used, emphasizing issues that require special consideration. Details should be given regarding the techniques to be used, collateral material to be consulted, and possible limitations of the analysis.
3. Cost estimates for the research. We expect to reach agreement on a fixed cost for this project with the Researcher.
While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
4. A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions.
5. Ideas regarding the form and distribution of the final report, both for immediate release and for permanent reference (e.g., submission to The Actuarial Practice Forum, North American Actuarial Journal or other SOA publication).
6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

 

5. SELECTION PROCESS

The SOA's sponsoring committees are responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the sponsoring committees will make the final decision. The SOA's Research Actuary will provide staff actuarial support.

6. QUESTIONS

Any questions regarding this RFP should be directed by fax, or e–mail to:

Ronora Stryker
SOA Research Actuary
f: 847.273.8514
e–mail: rstryker@soa.org.

7. NOTIFICATION OF INTENTION TO SUBMIT PROPOSAL

If you intend to submit a proposal, please send written notification by November 3, 2008 to:

Jan Schuh
SOA Research Administrator
f: 847.706.3599
e–mail: jschuh@soa.org

8. SUBMISSION OF PROPOSAL

Please e–mail a copy of the proposal to: Jan Schuh at jschuh@soa.org

Proposals must be received no later than November 14, 2008. It is anticipated that all researchers who have submitted proposals will be informed of the status of their proposal no later than December 31, 2008.

Note: Proposals are considered confidential and proprietary.

9. CONDITIONS

The Society of Actuaries reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available to proceed. The Society of Actuaries also reserves the right to redirect the project as is deemed advisable.

The Society of Actuaries intends to copyright and publish the results of this research. The research will be considered work–for–hire and all rights thereto belong to the Society of Actuaries. However, appropriate credit will be given to the Researcher(s).