CSO table history

1. 1941 CSO
• Attained age, aggregate level
• Omega age = 99
2. 1958 CSO
• Age setbacks for females (initially 3 years, later updated to 6 years)
3. 1980 CSO
• Introduced distinct rates for gender and smoker vs. non smokers (male, female, unisex, smoker,
non-smoker)
• Can be modified with 10-year select factors (lower mortality during select factors since they’ve
recently been underwritten)
4. 2001 CSO
• Omega age = 120
• Select period increased from 10 to 25 years
• Selection of mortality tables from preferred underwriting classes (super preferred, preferred,
residual standard non-smoker, preferred smoker, residual standard smoker)
5. 2017 CSO
IAM table history
1. 1937 IAM
• Attained age, aggregate level
• Omega age = 109
2. 1949 IAM
• Separate tables for males and females
3. 1971 IAM
4. 1983 IAM
• Omega age = 115
• Introduced G scale mortality improvement scale, but not required for reserves
5. 2000 IAM
• Interim table that applied scale G to the 1983 IAM table and deducted a 10% loading
6. 2012 IAM
• Generational mortality table (2012 IAM table + G2 scale for mortality improvement)
• Scale G2 is required to be used
Valuation Interest Rates
1. Dynamic valuation interest rate
icy = max valuation interest rate for the calendar year CY
=0.03 + w1 (r1CY – 0.03) + 0.50w2 (r2CY – 0.09)
Reference rate - rCY
r1CY = min(rCY,0.09)
r2CY = max(rCY,0.09)

2. Plan Type – reflects disintermediation risk on other annuities only

Type A: Most restrictive to policyholder -> least risky to insurer -> highest i CY
Type B: During int guaranteed period, withdrawals is either prohibited entirely or allower by adjusting for changes in int rates
or asset value, or without adjustment but in installments over 5+ years
Type C: Least restrictive to policyholder -> most risky to insurer -> lowest i CY. Subject to only fixed SC.

3. Issue Yr vs Change in Fund Method

Issue Year: Use int rates in effect at contract issue
Change in Fund: Int rates vary by CY. Changes in fund during a specific year will have to be valued based on int rate in effect
that year.
Common Reserving Methodologies
 Net Level Modified Reserve Full Preliminary Term Method CRVM
Premium Method

EA None • Varies EA=(PVFB1/äx+1) –cx AG 27 defines EA as

depending on = NP1 – cx smaller of:
FPT or CRVM Cx = v . qx . DB 1. EA under FPT of
• Not equal first the contract
yr expense Review the NP for time 0 and t>1 2. EA under FPT
(Page 32) assuming 20-pay
WL contract
First yr premium = α = cx for FPT
Β = NP for all other years

GP Vary by Year Use r-ratio and reflect it in annuity due calculation. rGP = GPt/GP0
Common Approximation of Reserves and
Other Liabilities
1. Terminal reserves : Reserve at the end of the year
2. Initial reserves: Prior year reserves + NP
3. Mean Reserves (assumes premiums are paid)
• Interpolated mean reserves = (1-h)(t-1Vx + NPt) + h(tVx)
• Mean reserves = (t-1Vx + NPt + tVx)/2
4. Mid-Terminal Reserves: weighted average of previous and next
terminal reserves
• (1-h)(t-1Vx) + h(tVx)
• Must include UPL since premium is not reflected at all
• (# of months till next premium/ # months between premium payments) * Modal NP
NAIC Annual Statement
1. Primary Financial Reports
• Balance Sheet – summarizes assets, liabilities, and surplus
• Summary of Operations
• Capital and Surplus Accounts – shows how surplus changed from one year to the next
• Cash Flow Statement – reconciles short term investments from one accounting date to a subsequent
accounting date (cash from operations, cash from investment activities, cash from financing activities)
• Analysis of Operations by Line of Business
2. Primary Schedule and Exhibits
• Analysis of Increase in Reserves during the Year
• Terminal reserves t-1 + tabular net premiums + tabular interest – tabular cost + reserves released by death +
reserves released by other terminations = Terminal reserves t
• Premiums and Annuity Considerations For Life and A&H Contracts
• Aggregate Reserve for Life Policy
• Deposit type contract – shows account balance for current period deposit type contracts
• Ending balance = Beginning balance + Deposits + Interest Earned – Fees – Withdrawals + Other Items
• Policy and Contract Claims
• Exhibit of Life Insurance
• Exhibit of Number of Policies
 Whole Life Insurance
(Reduced Paid Up Benefit Insurance)
 FVt = FVt-1 + Premiumst + Interest Creditedt + Dividendst – COIt – Expense Chargest
1. Categorized as fixed and guaranteed products
2. Min CVt = max (PVFBt – PVAdjPremt , 0)
• Since this is a life insurance, not an annuity, the policyholder’s premium + credited interest is not the min CV. Technically, PVFB = PVFP – PVEA. This value
could be more than 0 if a person is older since PVFB > PVFP because COI charges is level but not the mortality rates itself.

PVAdjPrem = PVFP + PVEA = (EAx + PVFB0) / äx

EAx = 0.01 * Face + 1.25 * min (0.04 Face, NFNLP)
NFNLP = PVFB0 / äx

If the face amount is non-level, use the average FA for the first 10 years only.
Mortality: Use prevailing CSO
Valuation Rate : Pre-operative : 125% of max val rate under SVL rounded to the nearest 0.25%
: Post-operative : max [4%, 125% of CY stat val rate for the NPR]

Reduced Paid Up Benefit Insurance: RPUx+t = MinCSVx+t / Ax+t

Whole Life Insurance
(Dividends)
 FVt = FVt-1 + Premiumst + Interest Creditedt + Dividendst – COIt – Expense Chargest
1. Policyholders use dividends in the following way:
• Receive dividends cash
• Use it to pay part of their next premium due
• Deposit the dividends with the insurer to receive intetest
• Purchase a paid up additional insurance coverage with no evidence of insurability
• Purchase one year term insurance without evidence of insurability

2. Dividends scale is set of rates that details how divisible surplus will be distributed to participating policyholders
3. Divisible surplus is amount of aggregate capital that will be distributed as policyholder dividends
4. Dividend actuary duties:
1. Review experience of each dividend class (expense, policy loan, mortality, interest, etc)
2. Determine investment earnings
3. Determine amount of earnings from other lines of business that will be reflected in the div. scale
4. Develop dividend factors
5. Perform various analysis to confirm compliance with various laws, ASOPs, etc.
6. Issue a report documenting the process used in developing the dividend scale

5. 3 factor dividend formula (mortality, interest, expense)

6. Insurer must hold “Provision for Policyholder Dividends” in the balance sheet liability for the dividends payable next year
Whole Life Insurance
(Reserves)
 FVt = FVt-1 + Premiumst + Interest Creditedt + Dividendst – COIt – Expense Chargest

1. Recursive reserve formula

2. Reserves released on death

Whole Life Insurance
(Deficiency Reserves)
 FVt = FVt-1 + Premiumst + Interest Creditedt + Dividendst – COIt – Expense Chargest

1. Required when guaranteed gross premium is less than NLP using the valuation method and min mortality rates and interest rates

2. Total reserves is max (a,b)

a= Reserves based off CSO, val rate, and val method
b= Reserves same as a, but replacing NP with GP when GP<NP. (This will generate higher reserves and that’s what
commissioners want)
3.

4. Deficiency reserve is not included in tax reserves (makes sense since IRS want more taxable income, def reserves will decrease
taxable income)
5. Stat reserves is floored to CSV. Final reserves = max (CSV, basic + deficiency reserves)
Term Life Insurance
(Reserves)
 FVt = FVt-1 + Premiumst + Interest Creditedt + Dividendst – COIt – Expense Chargest
1. Premiums are level for the term period, and then increases post-level period. Usually, there’s not many policyholders left
post-term period. To lower reserves, companies steeply increase premiums to lower reserves or have none since lapses
are not captured in reserving methodology. AG38 or Guideline XXX solves this issue.

2. XXX methodology for Term Life

1. Determine contract segments: New segment when r P > rqx
rP = GPt/GPt-1 ; rqx = qx+t/qx+t-1
2. Calculate segmented net premiums
• which is PVDB in each segment, term life does not usually have CSV so don’t worry about the unusual guaranteed CV
piece
• rGP is compared to the initial GP in the segment and this should still be reflected in the annuity due calcs
3. Calculate segmented reserves
• tVx Segmented = PVFB remaining in current segment – PVNP remaining in current segment
4. Calculate segmented unitary reserves
• Reserves over the entire period based off CRVM (without any segments)
5. Calculate basic reserves = max (segmented, unitary reserves)
• Max(segment reserves, unitary reserves)
3. Required to calculate deficiency reserves if GP<NP
Universal Life Insurance
(Reserves)
 FVt = FVt-1 + Premiumst + Interest Creditedt + Dividendst – COIt – Expense Chargest – Partial WIthdrawalt

1. Issue: UL has multiple terms that is not fixed and guaranteed

2. Expense Charge = % of Premium charge + Policy admin fee

Premium based charge % is made up of % on GP up to target premium and % on GP above target premium
Up to target premium: ECGPUTP * min (GP,TP)
Above target premium: ECGPATP * min (GP-TP,0)
3. COI Charge
Universal Life Insurance
(Model Reg 8-Step Calc)
 FVt = FVt-1 + Premiumst + Interest Creditedt + Dividendst – COIt – Expense Chargest – Partial WIthdrawalt

On Issue Date
1. Calculate a Guaranteed Min. Premium (GMP)
2. Calculate Guaranteed Maturity Fund (Based on guaranteed charges)
3. Calculate NLP using valuation assumptions
On Valuation Date
4. If GMF<FV, then calculate replace the GMF with FV and project the remaining GMF
5. Calculate r-ratio min(1,FV/GMF)
6. Calculate CARVM Reserve: r * (PV of Guar Benefits – PV NLP – PV EA)
EA is (PV1 Guar Ben/äx+1) – cx

The baseline of UL assumes it is a whole life, we should adjust reserves down if premiums are under paid to reflect term life
 Section C
Types of Reinsurance Treaties
(4 Types)