- Background
Individual level premium term life insurance products have been available in the marketplace for more than 10 years. Many companies ought to have contracts that have reached the end of the level premium paying period and have been in force for more than 10 or 15 years. The lapse experience in the years following the level premium period is a critical assumption for many purposes including but not limited to: pricing both for the issuing company and for reinsurers, establishment of GAAP benefit reserves and amortization of deferred acquisition costs, and asset adequacy analysis. It will also be important in the establishment of statutory reserves under a principle-based approach.
An initial survey of "shock lapse" experience was completed in May 2007. More experience should be available today given the increase in the number of level premium term life contracts that have entered the shock lapse period within the last few years. The May 2007 survey is available on the SOA's Web site.
- Purpose
The purpose of this project is to create reference material that addresses the educational needs of practicing actuaries by providing solutions to the following questions:
- What are the general level of lapses and mortality expected by life insurance companies for individual level term life insurance products for the period following the level premium period? (This question to be addressed by the chief actuary or their delegate.)
- What are life insurance companies actually experiencing for lapses and mortality for the products for the period following the level premium period?
- What is the size of the premium increase at the end of the level term period for these products? Does the size of the premium increase affect the level of lapse and mortality rates at that point in time? If so, what are the effects on lapsation and mortality?
- Research Objective
The objective for this project is to perform an industry survey related to post-level premium lapse and mortality experience for individual level premium term life products which updates the May 2007 survey. In analyzing the survey results, the researcher will determine the level of lapses and mortality assumed by individual term life insurance companies; assess the general level of lapse and mortality rates following the level premium period; review the size of the premium increase at the end of the level term period; and investigate how the size of the premium increase affects the level of lapse and mortality rates at that point in time, if any.
For conducting the survey, the SOA will provide the researcher with contact information for the companies identified. Information similar to that provided for the first survey will be requested. To supplement the information gathered through the written survey, the researcher will telephone the participating companies. The phone call will also permit the researcher to ask more in depth, response-driven questions. Rather than merely publishing the survey results, the researcher will need to review the results and draw conclusions. The researcher is also expected to contact the major individual term life insurance writers who do not respond to the survey to solicit a response.
Research results will be summarized into a report.
- Proposal
To facilitate the evaluation of proposals, the following information should 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, including computer time, salaries, report preparation, research costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included
Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. 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 North American Actuarial Journal or other refereed publication, The Actuarial Practice Forum, CD Rom).
- Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.
- Selection Process
The Product Development Section Council (PDSC) is responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the Council will make the final decision. The SOA's Research Actuary will provide staff actuarial support. A Project Oversight Group (POG) will be appointed by the PDSC to oversee the project upon selection of the proposal.
- Questions
Any questions regarding this RFP should be directed by fax, or e-mail to: Ronora Stryker, SOA Research Actuary (f: 847.273.8514).
- Notification of Intention to Submit Proposal
If you intend to submit a proposal, please send written notification by October 10, 2008 to Jan Schuh, SOA Research Administrator, by e-mail or f: (847.273.8556).
- Submission of Proposal
Please e-mail a copy of the proposal to: Jan Schuh.
Proposals must be received no later than October 17, 2008. It is anticipated that all researchers who have submitted proposals will be informed of the status of their proposal no later than November 21, 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).