SVILAC Ch. 11, Lesson 1: Valuation Methodologies
Statutory Valuation of Individual Life and Annuity
Contracts, 5th ed.
Chapter 11, Lesson 1: Valuation Methodologies
Source Authors: Claire, Lombardi, and Summers (2018)
Video By: J. Eddie Smith, IV, FSA
This is a sample handout. Full version available in the online seminar
SVILAC Ch. 11, Lesson 1: Valuation Methodologies
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Key Exam Topics in This Lesson
Common Statutory Reserve Methodologies
Overview
Net Level Premium Method
FPT Method
Examples With Level Gross Premiums
Example Contract
Task 1: Determine NLP Reserve
Task 2: Determine FPT Reserve
Example With Non-Level Gross Premiums
Task 3: Determine FPT Reserve Assuming Non-Level Premiums
Commissioners Reserve Valuation Method (CRVM)
Task 4: Determine the CRVM Reserve for a 10-Pay WL Policy
SVILAC Ch. 11, Lesson 1: Valuation Methodologies
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Overview of Statutory Reserve Methodologies
In all cases:
t Vx
= t VxNLP − t VEx
1. Net level premium (NLP) method (t VxNLP )
I
I
NP is a level % of GPs
No expense allowance (EA)
2. Modified reserve methods (t VEx 6= 0)
I
I
I
Any NLP method that also includes an EA
EA lowers reserves ⇒ unamortized EA = t VEx
Examples of modified methods: FPT and CRVM
CRVM is the lowest stat reserve allowed under SVL
I
A FPT method with additional rules for EA
SVILAC Ch. 11, Lesson 1: Valuation Methodologies
Common Statutory Reserve Methodologies
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Net Level Premium Method
Net premiums are a constant % of gross premiums
NLP
t Vx
= PVFBt − NP0 · äx+t
| {z }
PVNPt
NP0 = PB0 =
PVFB0
äx
= NP for first policy year
GPt
GP0
2
GP
äx = 1 + v · 1 px · rGP
1 + v · 2 px · r2 + · · ·
rGP
t = gross premium ratio =
GP
2
GP
äx+t = rGP
t + v · 1 px+t · rt+1 + v · 2 px+t · rt+2 + · · ·
NPt = PBt = PB0 · rGP
t
SVILAC Ch. 11, Lesson 1: Valuation Methodologies
Common Statutory Reserve Methodologies
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FPT Method
FPT = Modified NLP Method with a formulaic expense allowance
FPT
t Vx
= t VxNLP − t VEx = PVFBt − (PVPBt + PVPEt )
|
{z
}
PVNPt
t VEx
= PVPEt = PE0 × äx+t
EAx
PE0 =
äx
EAx = NP1 − cx =
PVFB1
äx+1
− cx
EA 6= actual expenses
FPT = V FPT = 0
0 Vx
1 x
FPT
≤ t VxNLP
t Vx
cx = v · qx · DB = first-year cost of insurance

cx
for t = 0 (α)
NPt =
PVFB1 GP
PBt + PEt =
· rt
for t ≥ 1 ( β)
äx+1
SVILAC Ch. 11, Lesson 1: Valuation Methodologies
Common Statutory Reserve Methodologies
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SVILAC Ch. 11, Lesson 1: Valuation Methodologies
Common Statutory Reserve Methodologies
Examples With Level Gross Premiums
Example Contract
Task 1: Determine NLP Reserve
Task 2: Determine FPT Reserve
Example With Non-Level Gross Premiums
Commissioners Reserve Valuation Method (CRVM)
SVILAC Ch. 11, Lesson 1: Valuation Methodologies
Examples With Level Gross Premiums
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