Background and Purpose
In collaboration with the National Association of Insurance Commissioners (NAIC), the Life Reserves Work Group (LRWG) and the Life Capital Work Group (LCWG) of the American Academy of Actuaries are working to develop a principle–based reserve and capital methodology for life insurance products. Exposure drafts of the principle–based reserve requirements being considered by the NAIC are currently available.
While some analyses have been performed by the LRWG to help understand the possible effects of the proposed reserving changes on various life insurance product types, more modeling of the potential consequences of the new principle–based reserving approach as compared to the current formulaic approach is needed. Modeling results should assist the LRWG, LCWG and NAIC in comprehending the impact of the proposed reserving approach and proposed capital requirements to a typical life insurer mix of business and in finalizing details of the new regulation and actuarial guidelines.
For the current exposure draft of the principle–based reserves for Life Products please see the American Academy of Actuaries Web site at: Actuary.org.
Purpose
The purposes of this project are to assist the American Academy of Actuaries in finalizing its recommendations to the NAIC regarding reserving and the impact of new capital requirements under a principle–based approach and to educate practicing actuaries about the potential effects of the AAA's tentative conclusions on U.S. life insurance products.
Research Objective
The objective for this project is to perform research that examines:
- The effect of the proposed principle–based reserving and capital approach on specific U.S. insurance products as well as different product mixes compared to the current formulaic approach. A preliminary list of products to be included in the analysis can be found in Section IV. The Researcher(s) should also use the results of this analysis as well as other available information to discuss the possible effects of the proposed principles for other insurance products.
- Where the NAIC or LRWG/LCWG have not settled on a tentative position, the effect of alternatives on U.S. insurance products.
- The method of recognizing reinsurance, and its impact on reserving and capital. In particular, how credit risk on reinsurance recoverables can be factored in, taking into consideration the financial strength of the reinsurer.
- Areas where implementation guidance is needed and where further clarification is needed.
Results will be summarized into a report made available to the membership. The report is not to include the Researcher(s) opinions on the recommended theory.
The Researcher(s) will work closely with a Project Oversight Group (POG) and Actuarial Task Forces (ATFs) to meet study objectives.
The POG will provide management, oversight and direction for the project, including recruiting ATFs.
ATFs are working groups comprised of company actuaries who will model the proposed approach and any alternatives using real insurance product data of their individual companies. They would also identify areas where guidance or clarification is needed. The ATFs have the assignment of producing the information that the Researcher(s) will utilize in producing the report. Each ATF will represent a product type (e.g. term life, whole life).
The Researcher(s) role will be to coordinate the project on a day to day basis, collaborate with the POG in finalizing the list of products to be modeled and the instructions to the ATFs; keep the POG informed of the project progress and any issues that arise, aggregate and analyze the results of the ATFs, validate the work of the ATFs; fill modeling holes (if any), and prepare a summary report containing the results of the study that will be useful to the American Academy of Actuaries and the SOA membership. To provide timely information to LRWG,LCWG and the NAIC, it is expected that the project will be completed no later than June 2009.
Preliminary Product List
A tentative list of the insurance products to be included in the study follows:
- Participating Whole Life
- 10–year Level Term
- Universal Life with no secondary guarantee
- Universal Life with shadow account secondary guarantee
- Universal Life with specified premium secondary guarantee
- Variable Universal Life with no secondary guarantee
- Variable Universal Life with secondary guarantee
- Variable Annuities
Proposal
For final evaluation of proposals, it is important that the researchers comment on their ability to meet the project completion deadline.
To facilitate the evaluation of proposals, the following information should also be submitted:
- 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.
- 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.
- 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.
- A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions.
- 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 or other SOA publication)
. The Researcher will be expected to present the results of the project at meetings with the LRWG and LCWG should the opportunity arise.
- Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.
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.
Questions
Any questions regarding this RFP should be directed by fax, or e–mail to:
Notification of Intention to Submit Proposal
If you intend to submit a proposal, please send written notification by July 7, 2008 to
- Jan Schuh, SOA Research Administrator
- e–mail: jschuh@soa.org
- f: 847.706.3599
- By mail:
- Society of Actuaries
- 475 N. Martingale Road, Suite 600
- Schaumburg, IL 60173–2265
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 July 14, 2008. It is anticipated that all researchers who have
submitted proposals will be informed of the status of their proposal no later than August 29, 2008.
Note: Proposals are considered confidential and proprietary.
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).