Section B: US GAAP Valuation and Reporting
B.1. FAS 60, FAS 97, and FAS 91
GAAP Ch.3: Expenses and Capitalization (Excluding 3.7.1, 3.7.3, 3.11.4.5 & 3.12)
TIA:
1. General guidance and authoritative GAAP literature
– General guidance: SFAC 5 and SFAC 6
– Insurance-specific guidance: FAS 60, FAS 97, FAS 91, and FAS 120
2. FAS 60 expense categories (6 total)
3. FAS 97 and FAS 91 expense categorization
4. Line of business and category analysis
5. Determination of deferrability of acquisition costs
PAK:
1. What is the difference in recognition of acquisition expense between GAAP and
Statutory valuation?
ACE:
1. Consider a life insurance product with a 50% first year commission and a 5% renewal
year commission. What would be deferrable expense for FAS 60 and FAS 97?
Past Paper
(2018S Q7a):
1. Describe the treatment of each of the following items on the income statement and
balance sheet:
(i) Costs associated with the development of a new illustration system
(ii) Payments made to wholesalers on the sale of variable annuities
(iii) First year commission on a level commission variable annuity
(iv) Termination and policy processing expenses
(v) Salaries and bonuses of actuarial staff
(vi) Charges associated with managing the bond portfolio
(2013S Q19c):
2. (i) Explain an accounting approach that might be used to demonstrate profitability
on a GAAP basis in 2012.
(ii) Describe how the accounting approach would differ under Statutory accounting.
(2011F Q13):
3. (4 points) The graphs below illustrate pre-tax earnings over time for a single-issue
year of non-par whole life business under various financial measurement bases.
Assume:
• Actual experience is equal to expected experience in each graph.
• Graphs depict first 20 years of earnings only
Based on the earnings patterns shown in each graph:
(a) (1 point) Determine the most likely financial measurement basis used for each of
the three graphs.
(b) (3 points) Explain the aspects of the financial measurement bases that lead to the
earnings patterns shown in each graph.
(2015S Q8a):
4. You are the GAAP valuation actuary for a U.S. life insurance company whose only
product line consists of individual fixed annuities.
(a) (3 points) Describe the expense categories stipulated by U.S. GAAP and their
impact on the calculation of the DAC asset
TIA Solution
2. FAS 97: similar to FAS 60, except % of premium expense split between deferrable
acquisition & direct maintenance
FAS 91: more restrictive definition of deferrable cost
3. LOB allocation
- Expense should be assigned to LOB (life, annuity, health, etc.)
- Then assigned to the appropriate accounting model within each LOB
Category determination:
- Costs need to be assigned to the appropriate category listed in the FAS 60
table above
PAK Solution
1. Statutory valuation: acquisition expenses are recognized in the choice of reserve
method (NLP vs modified reserve method)
GAAP valuation: acquisition expense can be deferred & amortized
ACE Solution
1. FAS 60 (Short duration contract): defer anything that primarily vary with NB (5%)
FAS 60 (Long duration contract) & FAS 97: defer anything in excess of the renewal
commission (45%)
Past Paper Solution
1. i) Non-deferrable acquisition costs
Income statement: expensed as incurred
Balance sheet: no impact (not capitalized)
OR
Future utility expense
Income statement: expense over time by amortizing an accounting asset
Balance sheet: capitalize and hold as a unique asset
ii) Deferrable acquisition costs (VA fall under FAS 97)
Income statement: expensed over time via amortization of DAC asset
Balance sheet: capitalized in DAC asset
iii) Maintenance costs (VA fall under FAS 97)
Income statement: expensed as incurred
Balance sheet: no impact (not capitalized)
iv) Maintenance costs
Under FAS 60
Income statement: expensed as incurred but reflect change in maintenance
expense reserve for these items
Balance sheet: hold maintenance expense reserve (not capitalized)
Under FAS 97
Income statement: expensed as incurred
Balance sheet: no impact (not capitalized)
v) Overhead
Income statement: expensed as incurred
Balance sheet: no impact (not capitalized)
vi) Investment expenses
Income statement: expensed as incurred (deducted from investment income)
Balance sheet: no impact (not capitalized)
2. (i) The acquisition costs are causing the product to appear unprofitable on the books,
so a DAC asset can be set up to defer recognition of the acquisition costs.
Acquisition costs include the following:
• Underwriting
• Policy issuance
• First year commission exceed renewal commission
Since the overall commission in 2012 was a lower % of premium (15%) compared to
2011 (11.2%), first year commission> renewal commission can also be deferred.
Setting up a DAC asset will reduce the expense in 2012→ demonstrate profitability.
(ii) Statutory accounting does not establish DAC asset, and instead, allows for a twoyear preliminary term reserve to be set up.
3. Graph A: either IFRS with residual margin≥ 0 or GAAP
IFRS with CSM≥ 0
(i) The initial value of contracts should either be zero (for profitable at time 0
contract) or be recognized as an expense (for unprofitable at time 0 contract)
(ii) The graph in this case illustrates the PVFCF< 0 (CSM>0) & CSM is added to
eliminate any gain at inception. The initial recognition is zero.
(iii) Profit will emerge overtime: an insurer shall recognize the CSM
determined at initial recognition as income in profit.
GAAP
(i) Non deferrable acquisition costs lead to first year drag on earnings.
(ii) Remaining profits emerge over the life of the business.
(iii) Earnings are a percentage of premium profit, release of PADs.
(iv) Declining earnings as in-force declines.
Graph B: either IFRS with initial contract recognition as an expense= PVCF or STAT
IFRS
(i) The initial value of contracts should either be zero (for profitable at time 0
contract) or be recognized as an expense (for unprofitable at time 0 contract)
(ii) The graph in this case represents the PVFCF>0 (CSM≤0), that amount will
be recognized as an expense immediately (Change recognize in P&L).
(iii) Profit will emerge over time.
STAT
(i) Large 1st loss is due to limited realization under STAT of initial acquisition
expenses.
(ii) Gains slowly emerge after large increases in STAT reserve in early issue
years.
(iii) Increasing level of profits emerge as conservatism in STAT reserve is
slowly released over time.
Graph C: Embedded Value
(i) At issue, PV of all profits is realized in income.
(ii) In subsequent periods, profits are all zero at total gain that was released
at issue (as long as actual = expected).
GAAP Ch.4: Traditional Life (Exclude 4.4-4.14) [FAS60]
TIA:
1. Understand GAAP standard FAS 60 benefit reserve methodology of long duration
fixed premium traditional life insurance
2. Compare short- and long-duration contracts at a high level
PAK:
1. Ch.3: For WL product, what you do if the year-end loss recognition test results in a
premium deficiency?
2. Describe the short duration contract and long duration contract
Past Paper
(2017S Q3b):
1. (2 points) Explain the differences between loss recognition testing and recoverability
analysis for SPDAs.
(2012S Q11biii):
2. List the appropriate order of adjustment to eliminate the premium deficiency if a
loss recognition test results in a premium deficiency.
PAK Solution
1. i) Remove any Provisions for Adverse Deviation
ii) Written down DAC
iii) Set up premium deficiency rsv= GPV – net GAAP liability if (a) & (b) insufficient
Past Paper Solution
1. Recoverability analysis
 Only performed on the policies issued in a given year
 Determine whether the PV of EGP ≥ PV of all future deferrable expenses
 Allow to combine products within a product line, but not across issue years.
Loss recognition testing
 Performed anytime throughout the life of a block of business
 Determine whether future EGP are sufficient to amortize the existing DAC &
expenses to be deferred in the future
 A block must consist of a single line of business, but may contain multiple
issue years.
2. Required adjustments are as follows:
(a) Remove any Provisions for Adverse Deviation
(b) Write down DAC
(c) Set up a Premium Deficiency reserve if (a) and (b) insufficient
GAAP Ch.6: Universal Life Insurance (Excluding 6.7-6.7.1.6, 6.7.3-6.7.6.3 & 6.10-6.13.2)
TIA:
1. FAS 97 applicability and definition of a UL contract
2. SOP 03-1 significance test
3. FAS 97 balance sheet & income statement presentation (compare to FAS 60)
4. FAS 97 benefit reserve
5. Unearned revenue liability
PAK:
1. Describe the purpose of significance test for UL policy.
Past Paper
(2015F Q8a):
1. (a) (1 point) Describe the features that determine whether a contract is a universal
life contract according to SFAS 97.
(2013F Q5ci):
2. You have been asked to determine how the UL business should be classified
according to SOP 03-1.
(i) Explain the purpose of the mortality/morbidity significance test.
(2013F Q7c):
3. (2 points) Describe similarities and differences with the presentation of the
income statement and the balance sheet under FAS 60 and FAS 97 for each of the
following categories:
- Liabilities
- Assets
- Revenues
- Benefits and other deductions
(2017S Q8d):
4. The product development team would like to add a first year premium load to the
product to cover ongoing policy expenses.
Describe the implications this change on the reserves
(2018S Q4a):
5. FRU Life produces US GAAP financials and is pricing a new Universal Life (UL) product
with deferrable acquisition costs (DAC).
(a) (4 points) The following three COI patterns are being considered:
For each pattern:
(ii) Determine whether an Unearned Revenue Liability (URL) needs to be established.
Past Paper Solution
1. UL contracts:
- Are long duration
- Have significant mortality risk
- Include one or more of the following features:
o Premiums are flexible
o Assessments against PH are not fixed and guaranteed
o Amounts that accrue to the benefit of PH are not fixed & guaranteed
2. Purpose:
 The test is used to classify contract at issue as insurance or investment contracts
o Insurance contracts are accounted for under either FAS 60 or FAS 97
o Investment contracts are accounted for under either FAS91 or FAS 97
 Contract with significant mortality/morbidity risk are classified as ins contract
 Contract with insignificant mortality/morbidity risk are classified as inv contract
 Significance is determined by comparing PV (excess payment) to PV (assessment)
o Excess payments: benefit payments in excess of the PH's AV
o Assessments: include all amounts to be assessed against the PH
3.
Similarity
Difference
FAS 97 may have URL
Liability Presentation is similar
Asset
Both have benefit reserves
Presentation is similar
Both have DAC
Revenue Both have investment income FAS 60 has premium
Benefit
Both have DAC amortization,
commissions & other
operating expenses
FAS 97 has fee income & URL amortization
FAS 60 has benefit payment & increase in rsv
FAS 97 has excess benefit payment, interest
credited to PH balance & bonus interest
charge
4. It requires companies to hold an unearned revenue liability (URL) for any unearned
revenues collected in early years for services that will be provided in later years.
5. ii)
A No URL required
As COI charges follow a “normal” mortality pattern
B URL MAY need to be established
As the COI charges do not follow a "normal" mortality pattern but are not
decreasing / front-end loaded.
C URL needs to be established
As the COI charges do not follow a "normal" mortality pattern & are
decreasing / front-end loaded.
GAAP Ch.7: Deferred Annuities (Excluding 7.4.1d, 7.6, 7.8, 7.10 & 7.11)
TIA:
1. Characteristics of fixed deferred annuities
2. How to classify fixed deferred annuities: FAS 97 UL vs. FAS 97 Inv vs. FAS 91 Inv
3. Understand how to apply FAS 97 to deferred annuities
4. Understand how to apply FAS 91 to deferred annuities
5. SOP Liability for excess annuitization benefits
PAK:
1. Explain the reasons why most forms of fixed deferred annuities are not subject to
FAS 60.
PAK Solution
1. - Premium are no longer fixed
- Product features are unbundled
GAAP Ch.3, Section 3.11: Sales Inducements 誘因 (Excluding 3.11.4.5)
TIA:
1. Be able to list and describe the primary financial statements, schedules, and exhibits
2. Be able to do basic calculations to arrive at various totals, subtotals in the statement
PAK:
1. What are the 3 types of sales inducements?
Book (P.49):
1. What are the primary financial statements?
Past Paper
(2016S Q11a):
1. For each of the following line items:
(i) Total cash and invested assets
(ii) Annuity benefits
(iii) Change in unrealized gains
(iv) Dividends to policyholders
Identify the primary financial statements from the NAIC Annual Statement where
PAK Solution
1. It should be minus the Dividends
Book Solution
3.
i)
Capital & Surplus Account
ii)
CF statement
Past Paper Solution
1.
(i) Balance Sheet
(ii) Summary of Operations and in the Analysis of Operations by LOB
(iii) Capital and Surplus Account
(iv) Summary of Operations, Analysis of Operations by LOB, Cash Flow Statement
GAAP Ch.9: Annuities in Payment Status (Excluding 9.5)
TIA:
1. Product classification for WL
2. Understand minimum CSV and RPU requirements under Standard Nonforfeiture Law
3. Understand how policyholder dividends are determined
4. Understand how policyholder dividends affect guaranteed policy values
5. Be able to construct an analysis of increase in reserves for a WL policy
6. Be able to describe and calculate deficiency reserves
PAK:
1. Define Reduced Paid-Up (RPU) Insurance.
2. Identify the dividend options that the policy owner can do.
3. The “three-factor dividend” formula is a common formula that dividend actuaries
use to allocate divisible surplus to determine the dividend for a participating WL
policy. Identify and define the factors.
Book (P.114):
1. Gross premium is $10,000, Net Premium is $6,379. What is the lowest gross
premium which there would be no deficiency reserve?
Past Paper
(2021S Q7cC): T/F
1. C.
The standard non-forfeiture calculation under SNFL uses the same mortality,
interest, and expense allowance as SVL for policies issued before 1/1/2017.
Book Solution
1. $6,379
Past Paper Solution
1. Not totally accurate – mortality stays consistent
But expense allowances are defined differently & interest is 1.25 x the SVL rate
LFM-149: Accounting Guide for Insurance Contracts (Section 5.6)
TIA:
1. Term
PAK:
1. Describe
Book (P.117):
1. Why
Past Paper
(2017S Q8a):
6. DBM Life is pricing a new variable universal life (VUL) product with an extended nolapse guarantee (NLG) and a long term care (LTC) rider.
a) Propose a detailed method to determine whether this new product requires
additional reserves under SOP 03-1
(d) The product development team would like to add a first year premium load to
the product to cover ongoing policy expenses.
Describe the implications this change could have on the SOP 03-1 reserves
PAK Solution
1. Premium
Past Paper Solution
1. a) Additional reserves (SOP03-1 liability) are required if the amounts assessed
For each year, calculate Profit = Assessments – Excess Payment – ΔURL
i) The profit followed by loss test should be apply separately to each feature.
- Test will be required for (1) base mortality feature, (2) NLG, and (3) LTC rider.
ii) For each separate test, determine which assessments apply for a specific feature.
Assessments = charges for the feature being tested
- Implicit charges in the contract that can be used in the assessments for this test
- If the COI charges cover both base mortality & NLG feature, then the COI should
be allocated for these tests
- If holding a URL, assessment + released in URL or assessment – increase in URL
iii) Excess Payments
Mortality feature: DB Paid – AV
NLG: DB paid when AV=0
Annuitization: Payout annuity – AV
Then some threshold, such as a specific # of scenarios that result in profits followed
by losses, would have to be developed to make the determination that the reserve
is needed.
SVLIL Ch.14: Universal Life (Excluding 14.4.8,14.4.9,14.5.0 & 14.6.2-14.6.6)
TIA:
1. Understand key differences between UL and WL
2. Understand UL fund value mechanics
3. Know the basic premium and death benefit designs for UL
4. Know the process for determining CRVM reserves under the UL Model Reg
5. Concept of UL secondary guarantees and reserve treatment
6. Other practical issues: minimum reserve for low fund values, excess CSV
PAK:
1. What does it mean that UL contract have “Terms that are not fixed & guaranteed”?
2. Identify & describe the 2 most common types of expense charge rates?
3. What is secondary guarantee?
4. Identify & describe the 2 primary types of secondary guarantee.
5. Why is the CRVM process for UL so different than WL?
Book (P.153):
1. How can the successive FV formula be used to develop analytical ratio that can be
used to monitor the valuation process on a regular basis? What else can these ratios
be used for?
2. What is the purpose of the corridor factors? How do they affect reserves?
3. Summarized the steps that need to be performed to determine the reserves for a
flexible premium UL policy. How do they differ from a fixed premium UL policy?
Past Paper
(2002F Q4d):
1. You have been asked to assist in the financial evaluation of Mercury Life’s Universal
Life (UL) block of business. Define the “r” factor, explaining how it is used and its
purpose.
(2013S Q13a):
2. With regard to U.S. statutory reserves for Universal Life (UL) products:
(i) Explain the purpose of the guaranteed maturity premium (GMP) in the CRVM
reserve calculation.
(ii) Describe the process used to calculate GMP for flexible premium products.
(2020F Q9a):
3. Compare and contrast these two ULSG designs: stipulated premium design and
shadow account design.
(2004 Q6c/ 2008 Q16a):
4. The following steps outline a procedure to determine minimum UL reserves for
duration t.
Revise or add to make each step compliant with the NAIC UL Model Regulation.
TIA Solution
1. The key difference between WL and UL is that UL contracts have contract terms that
are not fixed and guaranteed
Therefore, we have to incorporate a more retrospective view into the UL stat reserve
calculation— i.e. reflect performance that actually transpired since issue
PAK Solution
1. It means:
o Amount & timing of premium payment may vary; or
o Expense & COI charges are not guaranteed (subj to max); or
o Benefits are not guaranteed
2. Premium charge: % of premium
Policy admin charge: expressed as a dollar amount
3. Guarantee the DB even poor performance of fund
4. Stipulated premium design, Shadow account design
5. UL term is less fixed than WL. It needs more retrospective view in calculation to
reflect performance since issue.
Book Solution
1. Under the guideline premium test, the contract must also satisfy the cash value
corridor test:
DBt ≥ CSVt x Corridor Factort
Corridor factors are set by law: Ages 0–40 factor = 250%
for ages 41–95, factors grade to 100%
Key implication for reserving: it will cause the DB to increase (CSV=50k, DB=2.5*50=
125k) so that it satisfies the corridor test above—this in turn increases the guar DB
& reserve
Past Paper Solution
1. r = ratio of actual fund of GMF at valuation date & used in calculation of UL reserves:
NLP Reserve = r (PV(Guar benefit) – PV(NLP))
CRVM reserve= NLP reserve – r x Unamortized CRVM EA
where PV(Guar Benefit) is calculated starting from the max (actual FV, GMF)
Purpose: adjust reserve formula based on actual FV compared to GMF. Treat UL
plans in a way similar to permanent plans.
2. i)
Since UL products have flexible premium, future premium pattern is unknown. So it’s
hard to apply NLP reserve as for traditional products.
GMP is a reasonable assumption for future premium that can be used as gross
premium in the net premium reserve calculation.
ii)
 GMP = level gross premium (during premium paying period) that endows
contract at the latest maturity date under contract
 It’s solved using policy guarantees (guaranteed expense charges, COIs, and
interest rates)
 The GMP is always calculated as of the issue date
3.
Similarity:
Stipulated premium design (SP)
Shadow account design (SA)
Both provide guarantees that the policy will not terminate
Assumption used for calculation (such as interest rate, charges) are established
SG may expire at a defined duration (e.g., first 20 policy years)
Differences:
Stipulated premium design (SP)
Not terminate if:
Paid premium > stipulated amount
Expire when partial withdrawal or loan are
taken
Stipulated premium design (premium paid)
is also used for DB or CSV calculation
Not common to have multiple stipulated
premium coverages
Shadow account design (SA)
Not terminate if:
Shadow account > 0
N/A
Shadow account design (shadow AV) is not
used for DB or CSV calculation
Some shadow account designs have
multiple shadow account & each account
provide different guaranteed period
4. Step 1 and 2:
GMP & GMF are calculated from:
 valuation date -> issue date
 valuation assumption -> guaranteed assumption
Step 2:
GMF assume:
 Gross premium -> GMP
Step 3:
PVFB should:
 Project max (GMF, actual fund)
 valuation assumption -> guaranteed assumption
 GMP are paid
Step 4:
NLP should be calculated assuming:
 Gross premium is paid -> GMP is paid
Step 5:
 Calculate r= min (1, actual fund/ GMF)
 NLR V= r x (PVFB – NLP x a)
Step 7:
 CVRM V= NLR V - r x EA ax+t/ ax
LFV-822: Actuarial Guidelines 38 and 48 (Excluding pp. 6-8)
Impacts of AG 48
TIA:
1. Understand the motivation for AG 38 & the similarities with Guideline XXX for term
2. Identify the 8 product designs listed in AG 38 in an exam problem and be able to
describe the reserve approach for them
3. 5 revisions to AG 38 Section 8 and be able to describe the process for each
4. Describe the purpose of AG 48 and the requirements it places on ceding companies
and appointed actuaries
5. Pre-AG 48 method for determining economic & redundant reserves
6. Key impacts and implications of AG 48
7. Key AG 48 terms: Actuarial Method, Primary Security, Required Level of Primary
Security, Other Security
PAK:
1. Outline the safe harbours for the determination of min premium in section 8E of
AG38 2012.
2. List the main purpose of AG 48.
3. Explain why captive reinsurance financing structure is used for AG 48.
4. What is AG 48?
5. What are Other Security Assets?
Past Paper
(2020F Q3c, d, 9c):
1. XYZ Insurance Company is a U.S. company that established ABC Re Captive, an SPV to
contain a block of their term life insurance business.
Explain a primary reason why XYZ would enter into this transaction based on the
information provided.
2. Assume that PBR has been implemented at the time of reporting and the Actuarial
Method uses VM-20 without modifications.
Clearly Defined Hedging Strategy?
No
Yes
Perform Stochastic Exclusion Test?
Yes
Pass Stochastic Exclusion Test?
Describe XYZ’s decision-making process of the determination of Actuarial Guideline
48’s primary security requirement.
3. Critique the following statements related to ULSG:
(i)
AG 48 only applies to ULSG carriers utilizing captive reinsurance.
(ii)
Actuarial Method Reserve is calculated as VM-20 Reserve.
(iii)
Other security assets used to back the excess of AG 38 reserve over AG 48
reserve cannot be used as primary security assets to back AG 48 reserve, and
vice versa.
(iv)
For AG48, no exclusions are permitted from the Stochastic Reserve only.
(2019S Q10a):
4. PHI Life has two blocks of universal life secondary guarantee (ULSG) policies: one
block subject to Actuarial Guideline 38 (AG38) Section 8E and one block subject to
VM-20. PHI is considering using captive reinsurance to provide relief from the
surplus strain of AG38 reserves.
(a) Describe the conditions specified in Actuarial Guideline 48 that PHI must satisfy
to receive a reinsurance reserve credit.
(2018S Q8ai):
5. JDB Life is implementing VM-20 as the statutory accounting standard for their life
insurance products.
(a) JDB sells Universal Life with Secondary Guarantee (UL-SG) products with two
designs:
 Design A: Contains a dual shadow fund charge structure where one of the
shadow accounts has no-lapse Cost of Insurance (COI) charges significantly
higher when the no-lapse fund is at or near zero.
 Design B: Contains a single shadow account as the no-lapse guarantee
mechanism.
(i)
Describe how Actuarial Guideline 38 (AG 38) and its subsequent revisions
have changed UL-SG statutory accounting.
(2017F Q4c):
6. The appointed actuary of RHM has made the following comments regarding AG 48
compliance:
A. VM 20 and AG 48 allow for exclusions from calculating the stochastic reserve for
universal life policies if certain conditions are met.
B. Analysis for AG 48 compliance must be conducted for each reinsurance treaty and
not just in aggregate for the entire operating company.
C. We are allowed to apply a reduction percentage to reduce the net premium
reserve calculated under prescribed mortality rates.
D. Unless we comply with the AG 48 framework by December 31 of the year the
actuarial opinion is filed, we will lose some reserve credit
PAK Solution
2. Lessen reserve strain
3. Purpose of AG 48: establish standard governing XXX/AXXX reserve financing
transactions utilizing captives or SPV & ensure that Primary Security is held in an
amount at least equal to required level.
- AG 48 address the types & amount of asset need to be held as security under the
reinsurance contract
- AG 48 specifically apply to financing arrangement for term life subj to AG XXX and UL
subj to AG 38 (AXXX)
- AG 48 is not limited to transactions involving a captive structure
Past Paper Solution
1. Companies believe that XXX requires reserves that are redundant
Company can use captives that are reinsured to reduce their reserve requirements.
2. Primary Security should be based on the Actuarial Method.
Here, Actuarial Method is based on VM-20 with no modifications listed by AG 48.
VM-20 reserve = NPR + max[0, max(DR, SR) − (NPR − DPA)]
Because the company does not have a CDHS, they may decide to take the SET.
Because the company decided to take the SET, they are not yet required to calculate
a stochastic reserve.
VM-20 reserve = NPR + max [0, DR − (NPR − DPA)]
This will be the Primary Security Requirement
3. i)
Incorrect. AG 48 only applies to:
o Captive (SPV)
o Reinsurers that are not certified reinsurers
o Reinsurers that deviate from (= not comply with) statutory and RBC rules
ii)
Incorrect. The Actuarial Method is based on a modified VM-20 reserve
Modified VM-20 Reserve = max (NPR × Factor, DR, SR)
o NPR = net premium reserve required by VM-20
o DR = principles-based deterministic reserve required by VM-20
o SR = principles-based stochastic reserve required by VM-20
o Factor = a factor up to 1.0 that varies by issue age, gender, and smoking class
iii)
o Primary security held ≥ reserve determined by the Actuarial Method
o If the insurer holds more primary security than the minimum required, that
additional security counts toward other security.
o However, if the primary security held is below the minimum, the insurer
cannot use other security as primary security
iv) Incorrect. Exclusions are not permitted for Deterministic or Stochastic reserve
4.
• PHI must receive Primary Security collateral from the captive reinsurer in an
amount greater than or equal to the Actuarial Method amount. Primary Security
collateral consists of cash and SVO-listed securities meeting certain characteristics.
The Actuarial Method is a modified form of the VM-20 reserve methodology.
• If the reinsurance reserve credit exceeds the amount of Primary Security collateral,
PHI must also receive Other Security collateral from the captive reinsurer in an
amount equal to the excess. Other Security collateral consists of any security
acceptable to the Commissioner of PHI’s state of domicile.
• Either PHI or the captive reinsurer must hold a RBC cushion
• The Commissioner of PHI’s state of domicile must approve the transaction.
• PHI and its independent auditor must include a note within the audited Annual
Statement indicating that PHI is complying with Actuarial Guideline 48.
• PHI’s Appointed Actuary must address compliance with Actuarial Guideline 48 in
the asset adequacy opinion and supporting memorandum
5. i)
AG38 was written with the purpose of providing direction on the application of the
model to certain product types (term & ULSG), and requires a company to reserve
for ULSG using the same segmented methodology as term insurance
• More recent additions to AG 38 (8D and 8E) further specify methods of reserving
for guarantees on inforce blocks of certain UL policy types (8D) & prospective issues
of these same policy types (8E). These most recent sections are intended as a bridge
until a principle-based approach to valuation becomes operative.
• Section 8D applies a reserve floor derived from a modificaiton of the deterministic
component of VM-20, which is a gross premium reserve utilizing prudent estimate
assumptions with certain specified assumptions.
• Section 8E continues the formulaic approach under AG38 while modifying the
process for minimum premium determination, either using the charge structure that
minimizes the schedule of premiums (Method I), or assuming a premium pattern
that maximizes initial deficiency reserves (Method II).
Furthermore, guaranteed policy credits (such as interest on the no-lapse shadow
fund) for business subject to Section 8E requirements are restricted to a Moody’s
bond yield index plus 3 percent.
6. A. False. No exclusions exist for calculating the stochastic reserve under AG 48,
although they do exist under VM 20.
B. True. This analysis must be done on a treaty-by-treaty basis, and not in aggregate.
C. True. A reduction percentage is allowed to the net premium reserve that varies by
issue age, gender, and smoking status.
D. False. iv. The appointed actuary can take action until March 31 of the year in
which the opinion is filed, not Dec 31. In addition, the consequences are that an
opinion must be filed, and full reserve credit may be removed, not just some.
SVLIL Ch.16: Indexed Universal Life (Exclude 16.4.2-16.4.3) [Similar to old syllabus LFV830]
TIA:
1. Understand the terminology and methods related to IUL index credit calculations
2. Calculate successive IUL fund values, including excess index credits
3. Contract features that govern index credits
4. Understand the purpose of AG 36 and why it’s needed for IUL stat valuation
5. Describe/differentiate the 3 methods for determining implied guaranteed rates
under AG 36
6. Be prepared to calculate IGRs under IGRM if given the input values
PAK:
1. Identify & describe the 3 common indexing methods.
2. What are participation cap, participation floor, and participating margin?
3. The IGRM computational method is deemed to be consistent with CRVM under
several conditions. Identify the conditions.
ACE:
1. Comparing the IGRM and CRVM UMV method, which would produce the higher/
lower reserve?
2. You are given that a company has the following EIUL hedging strategy. Does this
strategy meet “Hedged as Required” basic criteria?
a. Company purchases a basket of stocks to replicate the index. In the event
that a participation rate is 80%, they only purchase 80% of AV in stocks.
b. Company purchases put options on the stock index in case stocks go down
and the GMAV is higher than the Indexed Account Value.
3. You are given that the risk free rate goes from 5% to 1%. How would this impact the
implied guaranteed rates at issue assuming Type 1 method?
4. You are given that the Stat Valuation rate goes from 3.25% to 3%. How would this
impact the implied guaranteed rates at issue?
Past Paper
(2017S Q4):
1. You are the Appointed Actuary of VDL Life Insurance Company, a U.S based insurance
company, which has recently launched an Indexed Universal Life (IUL) product.
(a) Contrast the following methods of valuation:
 Implied Guaranteed Rate Method (IGRM)
 CRVM with Updated Market Value (UMV)
(c) Critique the following email based on the requirements of Actuarial Guideline 36 (AG 36):
From: Valuation Actuary
To: Chief Actuary
Subject: IUL Hedging Strategy and Reserving Implications
After performing the analysis we discussed, I am pleased to confirm our hedging program
will qualify under the “Hedged as Required” criteria.
Therefore, we will qualify to use the CRVM with UMV method.
Here are some highlights of our hedging program:
 Hedging effectively covers 80%–90% of the reserve equity exposure in any given
period
 We have a system in place to monitor effectiveness
 If the difference between performance and expectations is ever above 25%, we must
notify the commissioner that we are no longer “Hedged as Required”
Relying on CRVM with UMV under Option Replication Hedging is considered a Type 2a
computational method. Once we establish this reserving choice, we may later decide to
move to a Type 1 method, but the reverse movement is not possible.
Compared to our basic UL reserving, AG 36 provides several differences:
 AG 36 for IUL does not reference any Cash Surrender Value floor
 When determining the moving average volatility for reserving purposes, our capital
markets team will use market data without any conservatism
PAK Solution
1. i) Annual Ratchet method = Annual reset
ii) Point-to-point method
iii) Hight-Water Mark method
3. - IGR after first term must be ≤ valuation interest rate
- Each index-based benefit term must be ≤ 1 year
- AA must demonstrate that above conditions are met
ACE Solution
1. Cannot tell. It depends on how the historical average compare to current market
value.
2. This does not qualify as HAR. It fails:
o Option held & option embedded in contract are equivalence
o Liability is Bond & Call option not Stock & Put option
3. This would increase implied guarantees in the first period. When the RFR drops, the
value of a call option increase. The accumulated option cost would increase. Future
periods use historical averages and this recent change will likely not impact historical
average too much.
4. Part b of the first year implied guarantees accumulates at the RFR. This would cause
the IGR to increase.
Past Paper Solution
1. a.
c.
• HAR is required for IGRM, not needed for CRVM with UMV
• The hedge amount should substantially cover the exposure each period, so 80–
90% may not be high enough
• Good to have the system in place to monitor effectiveness
• If the difference is 25%, notify Commissioners of amount hedged and surplus
impact of using CRVM with UMV or UAMV
• CRVM with UMV is a type 2 method, not type 2a
• Movements to other reserving approaches are allowed in both directions, but if
moving to Type 1, you must satisfy all Type 1 criteria
• AG 36’s purpose is to prescribe methods for calculating the IGR for use in UL
CRVM, but all other UL CRVM rules, including the CSV floor, still apply
• The historical average prescribes a 3% volatility PAD that must be used for
calculation
SVLIL Ch.18: Fixed Deferred Annuities (Excluding 18.7.4 & 18.8)
TIA:
1. Deferred annuity product designs—have a basic understanding of each
2. Insurance features and other features that could be attached to deferred annuities
3.
4.
5.
6.
Standard Nonforfeiture Law for annuities
Settlement options offered on deferred annuities
Understand CARVM and the general steps
CARVM benefit streams and terminology
– Elective vs. non-elective benefits
– Integrated benefit streams
– Incidence rates
7. Determination of valuation interest rates
8. Applying CARVM to common product features
9. CARVM for fixed and flexible premium contracts
PAK:
1. Describe Index Annuity
2. Define Nursing Home Waiver Rider
3. What is “life annuity with a period certain” in a settlement option?
4. Identify and describe the 2 separate procedures are performed to use CARVM
5. List the advantage and disadvantage of change-in-fund valuation basis
6. SVL allows the use of either an issue year basis or a change in fund basis for
calculating the policy reserve under CARVM. Describe 2 bases.
7. Mock Q4: For deferred annuities, how to determine the valuation interest rate.
Book (P.212):
1. What is the distinguishing characteristic of annuity contract?
2. What is fixed deferred annuity?
3. What is variable deferred annuity?
4. What is the primary emphasis of a deferred annuity?
5. What are some of the primary insurance features of a deferred annuity?
6. Give a brief description the CARVM.
7. What is the difference between the accumulation rate of interest (i.e., credited
interest rate) and the VIR?
8. Define & give examples of non-elective & elective benefits.
9. Define CV and annuitization benefit stream.
10. Define greatest present value.
11. Summarize the major steps taken to determine the statutory reserve for a variable
annuity contract with minimum DB guarantees under AG 36.
Past Paper
(2017S Q3d):
1. Actuarial Guideline XXXIII classifies possible annuity benefit streams into two
categories: non-elective benefits and elective benefits.
Define these categories and list two examples of each.
(2006 Q6a, b):
2. (a) Describe the features of a two-tiered annuity product.
(b) With respect to two-tiered annuities;
(i) Explain the statutory reserve requirements in the U.S.
(2020S Q8a):
3. Company XYZ offers a Single Premium Fixed Deferred Annuity product with the
following features:
• Partial withdrawals up to 10% of account value each year
• Nursing home benefit that waives surrender charges upon nursing home incidence
• Death benefit that waives surrender charges upon death
• Life-contingent annuitization at a guaranteed interest rate
(a) Identify each of the above benefits under Actuarial Guideline XXXIII (AG 33) as
one of the two categories and one of the three plan types. Justify your answer.
(c) The company is considering adding a Customer Loyalty benefit to newly issued
contracts. This benefit would pay 1% of the initial premium into the contract at the
beginning of the 5th year.
To qualify for the Customer Loyalty benefit:
• The contract must be in force.
• The contract must not have experienced any transaction that reduced the account
value prior to the end of the 4th year (including any form of withdrawal,
annuitization or death).
• The contract owner must transfer into any currently available annuity product at
the end of the 4th year (including the same product if then available).
Identify which of the two categories and which of the three plan types under AG 33
the Customer Loyalty Benefit would fall.
(2004 Q6a,b):
4. You are the Valuation Actuary of a major U.S. Life Insurance company, which offers
SPDAs and term life insurance.
(a) Describe the issues involved in applying CARVM to regular deferred annuities.
(b) Describe CARVM valuation considerations associated with the product
provisions often included in SPDAs.
(2018F Q4c,d):
5. With regard to U.S. STAT reporting for single premium deferred annuities (SPDA):
You are given the following information on an SPDA policy:
 A 45-year-old male deposits 10,000 into an annuity contract with 6%
guaranteed interest for 3 years.
 Guaranteed minimum interest rate is 1%.
 Crediting rate after the guaranteed period will follow the new money rate,
less a spread.
 Surrender charge is 5% in year 1 & grades linearly to 0% at the end of year 5.
 A bailout provision waives the surrender charge if the current credited
interest rate falls more than 3% below the initial guaranteed credited rate.
 Contract expires after the 5th anniversary.
 Death benefit is the account value.
(c) Contrast how elective and non-elective benefits are incorporated into the CARVM
Reserve calculation for this product.
(d) (3 points) Recommend two changes to the product features that would reduce
the statutory reserve requirements without affecting the guaranteed account values.
Justify your response.
(2021S Q5c):
6. Describe how the Commissioners Annuity Reserve Valuation Method (CARVM)
would be performed on this type of GLWB policy
PAK Solution
1. Fixed annuity with credit interest rate that is X% of the increase in a specified equity
market index over a specified period
X% = “participation rate”
E.g.: annual interest credit = max (0, 60% of S&P 500 equity index’s annual return)
2. Waive the surrender charges if the annuitant enters a nursing home
3. Provide periodic payment as long as annuitant lives but guarantee payment for a
specific period of time even if the annuitant dies
4. i) Calculating future guaranteed benefit:
Involve accumulating fund & apply the FV at various times to purchase annuity
benefits using guaranteed annuity purchase rate. When accumulating in this
manner, guaranteed FV are used & when apply the fund to annuity benefits, the
guaranteed annuity purchase rates are utilized.
ii) Discounting:
VIR & valuation mortality are used in discounting. VIR will vary depending on the
type of benefit being discounted.
5. Advantage: if initial max VIR > issue year method → produces smaller reserves
Disadvantage: difficult to manage data & must deal with negative deposits
6. Issue Year Basis: VIR is determined at the issue date & never changes
Change-in-Fund Basis: discount future benefits using different interest rates based
on the date at which the increase in the FV generated the specific benefits
7. VIR based on:
o Method of valuation (issue year vs change in fund)
o Whether cash settlement options
o Whether interest is guar on premium received 12m following the issue date
o Interest guaranteed period
o Plan type
AG 33 states first 3 parameters should be determined at contract level
Last 2 parameters should be determined at benefit level
Diff benefit stream within same IBS can be discounted by diff rates
Book Solution
1. An insurance contract that guarantees to pay a series of annuity payments beginning
immediately (immediate annuity) or at some future date (deferred annuity)
The fund of a deferred annuity works much like a UL contract (considerations and
interest credits in, charges out)
2. Fixed deferred annuity:
o Minimum guaranteed interest rate credited to fund value
o Asset invested in general account. FV does not fluctuate with FV of assets
o Insurance company bear most inv risk
3. Variable deferred annuity:
o PH has choice to invest in variety of separate accounts (equity fund, bond
fund, etc.)
o Asset invested in separate account
o PH bear most inv risk
4. The insurance contract may provide different emphasis
5.
6.
7.
8.
o Term: insurance
o WL: insurance & saving
o Deferred annuity: saving/ investment
Primary insurance features of a deferred annuity: (Below ins feature attached them)
o Living benefit: Annuitization option, GMAB, GMIB, GMWB
o DB: ROP, Reset, Roll up, Ratchet
CARVM Reserve = greatest (PVFB – PVFP) for any future policy year
Both are completely separate, but both are used in CARVM calculation
i) Calculating future guaranteed benefit:
Involve accumulating fund & apply the FV at various times to purchase annuity
benefits using guaranteed annuity purchase rate. When accumulating in this
manner, guaranteed FV are used & when apply the fund to annuity benefits, the
guaranteed annuity purchase rates are utilized.
ii) Discounting:
VIR & valuation mortality are used in discounting. VIR will vary depending on the
type of benefit being discounted.
Non-elective & elective benefits:
Non-Elective Benefits
e.g. DB, disability benefit, nursing home benefit
- Independent of PH’s election of an option
- Payable after the occurrence of a contingent
Elective Benefits
e.g. Withdrawals, surrenders, annuitization
Benefit option is up to PH choose them with
no other event needing to occur
9. Cash value benefit stream: series of PW that terminate in full withdrawal (Partial
withdrawal + Full withdrawal + DB)
Annuitization benefit stream: series of partial or full withdrawals that end in full
annuitization (Partial withdrawal + Annuitization + DB)
10. GPV: worst case valuation method – assume PH surrender policy at the time that
would cost the insurance company most
11. i) FV is projected forward on a guaranteed basis
ii) Projected FV are used to determine all future guaranteed benefits
iii) Find greatest (PVFB – PVFB) using VIR & mortality
SOA Solution
2. a) Perform separate projections for CSV & annuitizations
b) U.S. Two-Tier Reserving Requirements
o Based on CARVM
o PVFB – PVFP (premiums minus loads required by the contract) are calculated
o Worst case scenario, assume PH will act in the most adverse way against insurer
o For two tiered annuities, the max PV based on AV at annuitization or at
surrender will be taken.
o Discounting is at the prescribed interest rate & mortality table needs to be used
o VIR method is based on ‘issue year’ vs ‘change in fund’.
o Project FV forward on a guaranteed basis which includes annuity benefits, DB &
nonforfeiture benefits.
3. a)
The 2 categories under AG 33 are:
1. Below is non-elective benefits because people do not willingly decide to die or to
fit the criteria for entering nursing home
• This would include the death benefit and nursing home benefit
2. Below is elective benefits because it’s up to the PH to choose them
• This would include the partial withdrawals and annuitization option
The 3 plan types are A, B, and C:
1. Type A – most restrictive to PH; least risky to insurer (lowest reserves)
• Commonly used for non-elective benefits and annuitization,
• So, nursing home benefit, death benefit, and annuitization option would fall here
2. Type B ¬– between A and C
3. Type C – least restrictive to PH; riskiest to insurer (highest reserves)
• The 10% partial withdrawal is totally unrestrictive and up to the policyholder
c)
This is an elective benefit since qualification is at the PH’s discretion (requires PH
decisions leading up to time 4).
Plan Type C would apply since there are no adjustments to the PH’s values to
account for interest rate changes or asset value changes.
4. a) CARVM
o Greatest (PVFB – PVFB) using VIR & mortality
o Worst case valuation method
o Assumption of FV is guaranteed basis
o Assumption of PV is valuation basis (varies by type of benefit)
b)
Nursing home
No SC if annuitant enters nursing home
waiver rider
- Part of integrated benefit stream
Bailout provisions
No SC if Credited rate < Bailout rate
Reserve= max (Current AV, CARVM reserve ignore SC)
Market value adj
If asset held in general account→ exclude MVA in reserve
(MVA)
calculation
Annuity Purchase
Reserve ≥ 93% of FV used to purchase annuitization benefit
Guarantees
Two-tiered Annuity - 2 diff FV: 1) CSV, 2) Annuitization AV
- Perform separate projections for each FV
- Reserve = larger of the 2 PVs
5. c)
Non-Elective Benefits
Elective Benefits
e.g. DB, disability benefit, nursing home benefit e.g. Withdrawals, surrenders, annuitization
- Independent of PH’s election of an option
Benefit option is up to PH choose them with no
- Payable after the occurrence of a contingent
other event needing to occur
Incidence rate: probability benefit steam will occur in a given duration
DB: use prescribed mortality table under SVL
Use probability of 0–100% for each duration
Typically, GPV occur at 0%/ 100% incidence rate
Integrated Benefit Stream (IBS): A series of possible combination of benefit payment
IBS classifies into 3 types based how they end: Cash value, annuitization, and other elective benefit
Since it occurs independent of any choice by the Since benefits are an all-or-nothing, election will
PH, it should be considered as part of every IBS only be included in some of IBS and not others
d)
1. Remove bailout provision
2. Increase the surrender charge
3. Put restrictions on withdrawal options to increase the VIR from Type A
6.
Step 1: Project the FV on a guaranteed basis & determine all future guaranteed benefits.
Guaranteed benefits in this case include DB, annuitization benefit, GLWB payment &
surrender benefit.
Step 2: Calculate the PV for each future guaranteed benefit stream using the prescribed
valuation rates.
 Rates can vary by elective & non-elective benefits.
o Non-elective benefits for this policy are DB.
o Elective benefits include annuitization, GLWB payment & surrender
benefit.
 The projected payment streams for each benefit will be integrated together.
 For elective benefit, all possible incidence rate between 0%-100% must be
considered
 All future election points for annuitization must be tested to determine the GPV.
Step 3: The GPV of all IBS will be used for the CARVM reserve.
SVILAC Ch. 20: Indexed Deferred Annuities
TIA:
1. Anatomy of an indexed annuity: GMAV and indexed fund value
2. Contract features that govern index credits (same as IUL)
3. Describe/differentiate the 3 methods for carrying out CARVM for indexed annuities
under AG 35
4. Do various calculations related to each of the AG 35 methods
PAK:
1. Identify the 3 common indexing methods in EIA.
2. Describe AG 35
3. Identify & describe the computational method under AG35
4. List the steps to calculate reserve under CARVM under UMV
Past Paper
(2014F Q4a):
1. (i) (1 point) For equity indexed annuities, list the computational methods for U.S.
Statutory reserves that are considered to be acceptable interpretations of the
Commissioners Annuity Reserve Valuation Method (CARVM).
(ii) (2 points) Explain the hedging requirements associated with each of the
computational methods listed above.
PAK Solution
1. i) Annual reset
ii) Point-to-point
iii) High-water mark
2.

The determination of contract reserves for indexed deferred annuity contract
is based on SVL & if there are any GMDB, GLB, then AG43 also applies
 However, CARVM did not anticipate how to calculate reserve for credited
interest rate, so AG 35 was developed to provide guidance on how the SVL
should be applied to indexed deferred annuity.
 Principle of these methods is insurance company can buy call option that
match the guarantees granted to the PH
 The methods under AG 35 are divided into 2 categories:
o HaR met: EDIM
o HaR not meet: CARVM with UMV, CARVM with MVRM
3. Type 1: EDIM
o HaR met: EDIM
Type 2:
o HaR not meet: CARVM with UMV, CARVM with MVRM
o HaR not meet: Must provide certification signed by the AA
Past Paper Solution
1. i) EDIM, CARVM with UMV, MVRM
ii) Under EDIM, the Appointed Actuary must certify quarterly that either the Basic
Criteria or Option Replication Criteria has been met.
Basic Criteria:
 Equivalence of characteristics between option contracts held & options
embedded in liabilities
 At issue, amount of hedge purchased must be >= specified percentage of
product account value
 Company must have specific plan for hedging risks associated with interim
benefit obligations
 Company must have system in place to monitor effectiveness of hedging
strategy
 Company must state a maximum tolerance for differences between actual
and expected hedge results
SVILAC Ch. 21: Immediate Annuities
TIA:
1. NAIC definition of an immediate annuity
2. Types of immediate annuities
3. Variable immediate annuities
4. Valuation steps and assumptions for immediate annuities
PAK:
1. Describe immediate annuity
2. Syllabus Q14a: Outline the pros and cons of life annuity
3. Syllabus Q14b: Define the following types of annuities:
i)
Life annuity
ii)
iii)
iv)
v)
Certain annuity
Life annuity with period certain
Refund annuity
Joint and Survivorship annuity
PAK Solution
1. i) First payment is due ≤ 13 months from the issue date
ii) Succeeding payments are due at least annually for at least 5 years
iii) Each payment ≤ 115% of the payment in the prior year
2.
Advantages of life annuities
Disadvantages of life annuities
• Payments guaranteed as long as PH is alive • Illiquid
• Help diversify investment portfolio
• No value after death
• Payment may not adjust for inflation
3. Types of annuities:
1. Life annuity – makes payment while one or more annuitants are alive
• Called a “joint and survivor annuity” if payments are made until last death
2. Certain annuity – makes a payment for a certain period regardless of whether
annuitant is alive
3. Life annuity with a period certain – functions as a certain annuity during
certain period, then continues payment as long as annuitant remains alive
4. Refund annuity – a life annuity that guarantees that the total payments
received will be ≥ purchase price
SVILAC Ch. 22: Miscellaneous Reserves (Excluding 22.3-22.4)
TIA:
1. Accidental Death Benefits
2. Disability Waiver of Premium Benefits
3. Last-to-Die Policies
PAK:
1. Disabled life reserves consist of liabilities for 4 types of claim status. Identify the
types.
2. List the 2 types of Last-To-Die policies
PAK Solution
1. i) Approved claim: value by applying factor to amount being waived
ii) In course of settlement: based upon actual data as of valuation date
iii) Resisted: based upon actual data as of valuation date
iv) Incurred but unreported: based on factors derived from prior years’ experience
2. Traditional policies, Frasier-type policies
LFM-800 Ch. 8 - IMR and AVR
TIA:
1. IMR: purpose and asset types included
2. Methods for amortizing IMR
3. AVR: purpose and asset types included
4. AVR components and sub-components
5. Practice Exam Q1: LOL Life sells universal life insurance backed by a mix of
government and corporate bonds.
Compare the immediate impact of interest- and credit-related unrealized capital
gains on LOL’s income as measured under US statutory accounting systems
PAK:
1. Describe the asset valuation reserve (AVR).
2. Syllabus Q14a: Describe the interest maintenance reserve (IMR).
3. Syllabus Q14b: Describe the 2 method for accumulating and calculating the
amortization schedule for the IMR
TIA Solution
5. US statutory accounting: no impact on stat income statement
• Interest-related UCG:
o Most assets are held at amortized cost and do not fluctuate in value as FMV
changes due to interest rates
o No impact on stat income statement unless sold/realized (but it would affect
IMR amortization)
• Credit-related UCG:
o Changes in credit rating will impact AVR subcomponent contribution
o Reduction in credit rating increases AVR change, which lowers stat net
income in the current period
PAK Solution
1. AVR
o Reserve for future credit related CGL
o Reserve applies based on risk characteristic of invested asset (exclude cash, policy
loans, premium notes, collateral loans and income receivable)
o Divided into a Default & Equity Component
 Default: Bond, preferred stock, ST investment subcomponent
 Equity: Common stock & real estate subcomponent
2. IMR
o Reserve applies to interest-related CGL net of tax on fixed income investment
o IMR capture realized capital gains & loss resulting from change in general
level of interest rate & amortized into inv income over remaining life of
investment (2 methods below)
o IMR is required for BV separate accounts
o Negative IMR liability can only be recorded in General or Separate Account
o If net negative IMR balance occurs, it is recorded as a non-admitted asset
3. i) Seriatim method
ii) Grouped method
Section E:
List 4 areas that ORSA summary report covers
Calculation:
Drill A1 v1.xlsx