Annuity
Experience
Studies
March 12, 2013
Ingrid Guttin FSA, MAAA
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Midland National Life® Insurance Company
North American Company for Life and Health Insurance®
Sammons® Corporate Markets Group
Sammons Securities Company®, LLC. (Member FINRA/SIPC)
Sammons Retirement Solutions SM, Inc.
Sammons Financial NetworkSM, LLC (Member FINRA)
Agenda
• Company Background
• Annuity Experience Needs
• Annuity Experience Methodology
• Dynamic Annuity Environment
• Challenge: Annuity Lapses
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Midland National Life® Insurance Company
North American Company for Life and Health Insurance®
Sammons® Corporate Markets Group
Sammons Securities Company®, LLC. (Member FINRA/SIPC)
Sammons Retirement Solutions SM, Inc.
Sammons Financial NetworkSM, LLC (Member FINRA)
Company Background
• Affiliated Companies
• History
• Multiple Locations
• Sammons Annuity Group
• Annuity Inforce = $25B
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Midland National Life® Insurance Company
North American Company for Life and Health Insurance®
Sammons® Corporate Markets Group
Sammons Securities Company®, LLC. (Member FINRA/SIPC)
Sammons Retirement Solutions SM, Inc.
Sammons Financial NetworkSM, LLC (Member FINRA)
Annuity Experience Needs
Product
Development
Valuation
Withdrawals
ALM/Modeling
Lapses
Mortality
Premiums
Policyholder Behavior
Agent Behavior
Business
Rider Utilization
Management
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Midland National Life® Insurance Company
North American Company for Life and Health Insurance®
Sammons® Corporate Markets Group
Sammons Securities Company®, LLC. (Member FINRA/SIPC)
Sammons Retirement Solutions SM, Inc.
Sammons Financial NetworkSM, LLC (Member FINRA)
Annuity Experience Methodology
Credibility
User Needs
External Factors
Trending
Modeling Methodology
Historical Data is the easy part…
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Midland National Life® Insurance Company
North American Company for Life and Health Insurance®
Sammons® Corporate Markets Group
Sammons Securities Company®, LLC. (Member FINRA/SIPC)
Sammons Retirement Solutions SM, Inc.
Sammons Financial NetworkSM, LLC (Member FINRA)
Dynamic Annuity Environment
12%
10%
FIA with MVA
?
8%
6%
Premium
Bonus
4%
GLWB
2%
Decreasing Interest Rates
0%
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
Rates based on Barclays U.S. Long Credit Index
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Midland National Life® Insurance Company
North American Company for Life and Health Insurance®
Sammons® Corporate Markets Group
Sammons Securities Company®, LLC. (Member FINRA/SIPC)
Sammons Retirement Solutions SM, Inc.
Sammons Financial NetworkSM, LLC (Member FINRA)
Policyholder
Perspective
Lapse Experience
Challenge: Annuity Lapses
Bonus Influence
Surrender Value/Account Value
Focus Group
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Midland National Life® Insurance Company
North American Company for Life and Health Insurance®
Sammons® Corporate Markets Group
Sammons Securities Company®, LLC. (Member FINRA/SIPC)
Sammons Retirement Solutions SM, Inc.
Sammons Financial NetworkSM, LLC (Member FINRA)
Thank You!
Ingrid Guttin FSA, MAAA
iguttin@sfgmembers.com
Sammons Financial Group Affiliate Companies
18122 PRT 02-13
Midland National Life® Insurance Company
North American Company for Life and Health Insurance®
Sammons® Corporate Markets Group
Sammons Securities Company®, LLC. (Member FINRA/SIPC)
Sammons Retirement Solutions SM, Inc.
Sammons Financial NetworkSM, LLC (Member FINRA)
Experience Studies
March 12th, 2013
Michael Chen, FCAS MAAA
Experience Studies
Property & Casualty Insurance
The goal of a ratemaking analysis is to set the
rates such that the premium charged will be
appropriate to cover the losses and expenses
while achieving the targeted profit for policies that
will be written during a future time period.
Premium = Losses + Loss Adjustment Expenses +
Underwriting Expenses + Underwriting Profit.
Note:
Source: CAS Basic Ratemaking Manual
Experience Studies
How do we as Actuaries accomplish this goal?
There are two basic approaches for determining an overall rate level need:
1. Pure premium method
The pure premium method determines an indicated average rate, not an indicated
change to the current average rate. The pure premium method is generally used to
determine rates of a new product where there is not internal historical experience.
2. Loss ratio method
The loss ratio method is the more widely used of the two rate level indication
approaches. The loss ratio method compares the estimated percentage of each
premium dollar needed to cover future losses, loss adjustment expenses, and other
fixed expenses to the amount of each premium dollar that is available to pay for
such costs.
Experience Studies
Rate Indication Example:
(1)
(2)
Accident
Year
Ending
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
Total
Adjusted
Premium
3,000,000
8,000,000
12,000,000
14,000,000
15,000,000
Total
Weighted
52,000,000
(3)
(4)
(5)
(6)
Projected
Projected
Indicated
Ultimate
Loss
Rate
Losses
Ratio
Weights Change
2,000,000
66.7%
0.100
11.1%
5,000,000
62.5%
0.150
4.2%
7,000,000
58.3%
0.200
-2.8%
9,000,000
64.3%
0.250
7.1%
9,500,000
63.3%
0.300
5.6%
32,500,000
62.5%
62.8%
4.2%
4.6%
Permissible Loss Ratio = 60.0%
Indicated Rate Change = ( Projected Loss Ratio / Permissible Loss Ratio ) -1
Experience Studies
Rate Indication – Premium Adjustments
 Adjustment of Premium to Current Rates
•
Parallelogram Method
•
Extension of Exposures
 Premium Trend
•
Company’s Own Trends
•
Industry Trend [Insurance Services Office (ISO), National Council on
Compensation Insurance (NCCI), etc.]
•
Other Sources (Bureau of Labor and Statistics, fitting distributions)
 Other Premium Adjustments
•
Basic Limits Indications
•
?
Experience Studies
Rate Indication – Loss Adjustments
 Loss Development
•
Loss Development based on Case Incurred Loss Development
Method
•
Loss Development from other methods example: BornhuetterFerguson method
 Loss Trend
•
Company’s Own Trends
•
Industry Trend (Fast Track, ISO, NCCI, etc.)
•
Other Sources (Bureau of Labor and Statistics, fitting distributions, ?)
 Large Loss Adjustments
 Storm (Catastrophic) Loss Adjustments
Experience Studies
Rate Indication – Other Adjustments / Assumptions
 Credibility Standard
 Complement of Credibility
 Annual Weights
•
Example of possible alternative to (10%, 15%, 20%, 25%, 30%) weights
(1)
(2)
(3)
(4)
Adjusted
Weights
10.0%
15.0%
20.0%
25.0%
30.0%
100.0%
% Distribution of
Total Premium
5.8%
15.4%
23.1%
26.9%
28.8%
100.0%
Accident Year
Ending
12/31/2008
12/31/2009
12/31/2010
12/31/2011
12/31/2012
Total
Sumproduct of column (2) & (3)
 Other Adjustments?
22.9%
Weights
2.5% =(10.0% * 5.8%) / 22.9%
10.1%
20.2%
29.4%
37.8%
100.0%
Experience Studies
Besides changing rates to the full indicated rate change, what other
initiatives may be used to effect the overall rate level?
 Underwriting
 Claims
 Expenses
 Other
Contact Information
Michael Chen, FCAS MAAA
Actuary – PC Pricing
Michael.Chen@fbfs.com
Experience Studies
Glen Reineke, FSA MAAA FRM
March 12th, 2013
Experience Studies
Life & Annuity
 Mortality (including a Cause of Death)
 Premium Persistency (Flexible Premium Universal Life)
 Surrender (and involuntary Lapse),
• including modifications for Dynamic Surrender formula
 Partial Withdrawal (and Policy Loan Utilization)
 Other policyholder characteristics
• Rider utilization
• Investment Type of activities
Experience Study & Assumptions
Setting Process
The root of the question: What should we assume in the future?
While there are other purposes, this is my primary focus.
One approach: Take a look at the past and adjust accordingly
(Actual to Expected = A/E ratios)
Assumption Setting
Must be coordinated with modeling efforts
Even if you create the “best” (most accurate) assumption
possible, you must be able to implement it in your
actuarial projection models.
If your model can’t implement it, have you really
accomplished your objective?
For example, financial credit scores (and other 3rd party
data obtained through Predictive Modeling) may provide
excellent insight in to surrender behavior … but may not
be implementable in to your actuarial projection models.
Assumptions Setting
Is the past always the best predictor of the future?
Could it ever lead you in the wrong direction?
Must ask yourself if the past really is the best indicator of YOUR
company’s future. Are there any “outliers” that should be thrown-out?
One example of modifying past
experience
Life Mortality Improvement modification example:
If your company has recently adopted a mortality improvement
assumption, you may want to modify your experience study to
reflect your newest outlook on mortality.
Contact Information:
Glen Reineke, FSA MAAA FRM
Vice President – Product Reporting
glen.reineke@avivusa.com