Longevity protection – or living benefits – is emerging as a growth opportunity for life insurers. In the following article, Michelle Moloney explores the British market, which has been an early mover in transferring longevity risk associated with private pension plans to the insurance industry, as well as implications and opportunities in the U.S.

Summary of the general approach to developing older age (issue ages 70+) mortality assumptions as promoted by Generali USA.

While traditional risk management coverages on group and individual life portfolios can be structured to make them affordable, in many instances to do so will mean the coverage will have conditions and limitations
which will make it an ineffective risk management tool. Because of this, today more and more companies are turning to AD Carve-Out reinsurance as a viable risk management solution.

When talking about valuation in the United States, people have a feeling that it is all about government prescription.

Several shifts are underway that will result in significant changes in the way that insurance companies use actuarial resources. An increase in qualified actuarial resources, and a need to move company actuaries into more strategic activities will offer opportunities that have previously been unavailable. The exact timing and pace of this change is uncertain, but the economics are so compelling that the author thinks it is not a question of if, but when, a new model will prevail.

The European Commission's draft technical specification for the fifth Solvency II Quantitative Impact Study (QIS5) indicates how the standard formula is likely to be set for QIS5. In order to determine how the new rules will affect solvency positions under the standard formula for Europe's life insurance market, Milliman analyzed the potential impact of QIS5 in several European markets: France, Ireland, Italy, the United Kingdom, Poland, Romania, and Slovakia.

Each year Full Disclosure surveys leading companies active in the whole life insurance marketplace. All data is current as of February 1, 2010, a period by which most insurers have declared their current dividend scales for the year.

This report features 29 policies, two more than last year. All of them are participating (dividend-paying), with the exception of a few guaranteed policies (see footnotes for details). Sections of this excerpt from our study cover current and guaranteed illustrated values, the industry’s only actual historical performance analysis, policy retirement income illustrations, and a narrative detailing what each policy’s fundamental design objectives are.

This article is intended to give a high level overview of the recent release of the update to the illustration practice notes. Guidance for illustration testing should be sought from the Illustration Model Regulations and Actuarial Standard of Practice (ASOP) 24, as well as review of the practice notes. (Begins on p. 22 of the February 2010 issue of Product Matters, the newsletter of the SOA's Product Development Section.

The SOA Health Section is pleased to make available a research report that describes the current state of Enterprise Risk Management practices for health organizations. The report was prepared by Max Rudolph of Rudolph Financial Consulting, LLC.

As an overhaul of financial services regulation is debated in Washington, the American Academy of Actuaries is throwing its support behind creation of a federal systemic risk regulator for the entire financial services sector.

Presentation from the SOA 2010 Life & Annuity Symposium, May 17-18, 2010.

We’ve all seen it—basic group life rates that look more like AD&D rates; rate guarantees periods that resemble a mortgage contract; liberal guarantee issue maximums; and plan maximums that are so high that no person in the group even comes close to qualifying for, and on and on.

For quite some time, the efforts to develop a principles-based approach (PBA) to statutory reserves have been led by a small number of key players. While many others have followed their progress closely, the life insurance industry at large has taken a wait-and-see approach. However, companies are now stepping up and preparing for the transition to a new regulatory regime.

The life insurance industry is beginning to experience the effects of the so-called “shock lapse” as level-premium term products transition into their post-level periods. To understand the mortality implications of these extreme lapse scenarios, it seems appropriate to review the selective lapsation theory presented in the ground-breaking 1980 article “Pricing a Select and Ultimate Renewable Term Product,” by Jeffery Dukes and Andrew MacDonald. This will provide good context for analyzing emerging post-level lapse and mortality experience.

Article in the Society of Actuaries Health Watch Newsletter - February 2010, starting on p. 28.

http://www.actuaries.org/calendar/calendar.cfm

http://www.soa.org/professional-development/event-calendar/events-calend...

Presentations from various sessions at the Investment Symposium held on March 22–23, 2010 in New York.

Life insurers routinely model the sensitivities of risk factors to the external environment. Extreme events represent an important new dimension that must also be factored-in. Partner Re on some extreme events and ask what the life sector can do to prepare for the unexpected.

The economic crisis that dominated the news during 2008 and 2009, the expansion of technology, changing accounting standards, access to capital, and changing demographics are some of the challenges facing the life insurance sector. To provide a catalyst for discussion and to showcase the thought leadership of actuaries, the Financial Reporting, Product Development and Reinsurance Sections of the SOA sponsored "Life Insurance 2020 Foresight–A Call for Essays." Members of the SOA responded by authoring short essays with their unique and thoughtful vision of the future. We are proud to be able to present this collection of essays selected from among those submitted.

Is growing international acceptance of the principle-based measurement of risk the neatest thing since sliced bread? Maybe. But not in its current iterations.

In order to launch new health microinsurance products, actuaries and other healthcare professionals will be involved at the pricing stage as technical advisors. This Milliman paper provides technical advisors with some guidelines and a tool for collecting healthcare pricing data where none exists or where what exists is unreliable. These tools are provided to the reader as a set of appendices.

Presentation at the 2009 Fall Actuaries' Clubs of Hartford & Springfield and Boston by Jordan Carreira, Chief Underwriter & VP,
Lincoln Financial Group.

Switzerland's insurers need local regulation to be harmonised with international standards and improved access to European Union markets to boost growth, executives said in November.

Transamerica Reinsurance President Paul Rutledge recently spoke with Fred Sievert, former president of New York Life and current chairman of the Actuarial Foundation, about the demanding issues facing life insurers since the onset of the financial crisis. Fred shares his view that a number of life insurers, in search of continued growth, became too comfortable with optimistic investment gains subsidizing increasingly risky business. When the financial markets began failing, the weaknesses of this dependency were exposed.

The Society of Actuaries' Group Disability Insurance Experience Committee has completed their study of termination experience for the period 1997-2006.

Did you ever, in your wildest dreams, expect to spend your career in the insurance industry? That familiar question, posed to many attendees at various insurance conferences, often draws chuckles from respondents, as they scan the room looking for the few individuals who have sheepishly raised their hands.

Milliman research report designed to identify why some companies have not yet registered with or filed through the IIPRC and to gauge the experience of those companies which have filed Interstate Compact submissions. The survey asked companies 17 questions regarding the IIPRC and overall, revealed a high level of satisfaction for companies currently filing IIPRC submissions. Responses to the survey were submitted by 61 companies.

Insurers know well that using a consistent approach to managing and measuring diverse risk portfolios is an ERM essential that can help them make informed decisions about pricing, product strategy, capital budgeting and linking pay to performance. And yet most insurers use any number of measurements to gauge financial results across varied businesses.As part of Towers Perrin's ongoing series on embedding ERM in insurance, this new article sheds light on a consistent analytical framework that can be applied to an insurer's internal measurement and management system to align value assessment, risk and capital management.

A discussion among regulators of how a new guideline for reserving for variable annuities should be crafted included talk about how reliable stochastic scenarios are in assessing reserving needs of companies.

Article in the October/November issues of The Actuary magazine.

In The Black Swan: The Impact of the Highly Improbable, Nassim Taleb explains the realm of the black swan. The former Wall Street “quant” turned philosopher describes two worlds: “Mediocristan,” where events far from the ordinary rarely happen, and “Extremistan,” where unexpected and unpredictable events – black swans – can occur.

Insurers that try to illustrate annuity performance graphically should provide at least 2 standard illustrations, veteran actuary Steven Ostlund of the Alabama DOI has recommended in a comment letter submitted to the NAIC's Annuity Disclosures Working Group.

The September 2009 issue looks at:

• Life Reinsurance Data from The Munich American Survey By David M. Bruggeman
• What Reinsurers and Cedants Can Learn from Uncle Rex and the Bulls By Rick Flaspöhler
• Reinsurance Modernization – A New World ViewBy Daniel W. Krane and Elizabeth A. Diffley
• Life Reinsurance: Capacity and Concentration of Risk Survey Analysis By William J. Briggs, Gaetano Geretto and Robert B. Lau
• Enhancing the Benefit: How quality successful limited-benefit health plans answered the demand for a more robust product By Curt A. Wieden
• American Academy of Actuaries Stop Loss Risk-Based Capital Work Group is Reviewing the Potential Need for Changes in the RBC FactorsBy Michael L. Frank

The Committee on Life Insurance Research, Product Development Section, and Reinsurance Section are pleased to make this report available. Performed by the Ernst & Young team of Thomas Crawford, Richard de Haan and Chad Runchey, this research reviewed literature on longevity risk. The paper summarizes results and addresses topics including the emergence and quantification of longevity risk; current and future risk management techniques; and products currently in the market that are exposed to longevity risk. The appendices include a summary of each paper reviewed for the study.

This report presents the results of the most recent study of individual life insurance lapse experience in the United States conducted jointly by LIMRA International and the Society of Actuaries (SOA). The observation period for the study is calendar years 2004–05. The study is based on data provided by 34 individual life insurance writers and it presents lapse experience for whole life, term life, universal life and variable universal life plans issued between 1901 and 2005. This report includes results for most key policy and product factors.

From the CDC's MMWR.

In case you haven’t heard, there’s a big change in accounting standards getting ready to take place. Around about 2014, there will be “a single set of high-quality, understandable and International Financial Reporting Standards (IFRS) for general purpose financial statements.”

This is the second part of a series on the uses and misuses of mortality metrics. Life table construction is beyond the scope of this article, but the reader will need some familiarity with life tables in order to understand the issues. See this related document which illustrates life table construction and the calculation of life expectancy.

A wise actuary told me that we spend much more time on risks that we understand than on risks we’re not comfortable with. For example, actuaries spend hours calculating mortality and lapse rates, but we typically treat interest rates as a “standard assumption.” After all, interest rates are environmental factors outside of our control and difficult to predict.

With the H1N1 flu spreading globally, the World Health Organization (WHO) has declared it a pandemic. This marks the first global flu epidemic in 41 years with reports of the flu coming from Mexico, U.S., Australia and many more locations. In response to this development, members from the Society of Actuaries (SOA) are advising businesses to revisit and/or create business continuity and preparedness plans.

The current economic crisis is challenging life insurers to look closely at all of the products in their portfolio and make adjustments as necessary. While much of the focus is on variable annuities and universal life with secondary guarantees, the performance of term life is also affected by market upheaval.

In this issue of The Forecaster, Jim McArdle, Senior Vice President of Sales and Marketing at Transamerica Rinsurance, discusses the impact of current market conditions on term life insurance with Keith Dall, Principal at Milliman, Inc. Keith sees companies responding in a variety of ways – looking for new financing solutions, tightening underwriting guidelines, monitoring products and rates more closely and more.

Paper presented to the Institute of Actuaries of Australia
2009 Biennial Convention.

Paper prepared for the Institute of Actuaries of Australia’s (Institute) 4th Financial Services Forum 2008.

Like so many aspects of the life insurance business, manufacturing return of premium (ROP) term just became more complicated. Actuarial Guideline CCC (AG CCC) is already effective for new policy forms and starting in 2010 affects all contracts. The guideline treats ROP by rider the same as ROP as an integrated benefit and provides guidance for the calculation of cash values (CVs). These changes, among others, will impact the design, pricing, ROP pattern and administration of ROP products going forward.

As part of the recently released 2008 VBT mortality tables, the Society of Actuaries introduced a theoretical model of the mortality continuum for the insurable population. The model’s spectrum extends from the very best super-preferred risks to those who barely qualify for a residual-standard class. Also included in the theory are underlying distributions for each distinct level of mortality. So how does the SOA model hold up to real world empirical data? Transamerica Reinsurance’s mortality experience database provides an ideal vehicle for putting the theory to the test.

This monograph contains papers submitted and presented at the 2008 Enterprise Risk Management Symposium held April 14-16, 2008 in Chicago. It also includes additional research papers that were submitted and accepted for the 2008 ERM Symposium Call for Papers, but not presented. This was the third year in which a call for papers was issued in conjunction with the Symposium. The call for papers continues to showcase the latest in ERM thinking as well as present advances made in this arena.

The SOA's Preneed Experience Team is pleased to make available the following report by the Deloitte–UConn Actuarial Center examining preneed life insurance mortality experience. The report has been revised since its initial release to correct an error discovered in the Preneed Insurance Male Mortality Table per 1000. An Excel Spreadsheet of the Mortality Table shown in the report is also provided.

Presentation by Transamerica Reinsurance's David Wylde at the 2009 MUD Group meeting.

Presentation by Rick Bergstrom and Anna Hart at the 2009 MUD Group meeting.

The insurance industry is in the business of controlling threats to life. It has invented new mortality gadgets, and now it needs to control them properly despite today’s tough times.

Despite the financial crisis, the ILS market has more than held its own and appears poised for further growth. This Towers-Perrin article appears in the 2009/1 issue of Emphasis.

PricewaterhouseCoopers shares research conducted by the Centre for the Study of Financial Innovation (CSFI). It questions insurers on three areas: current risks, future trends, and their preparedness to respond to the risk environment. With 403 insurers and industry observers responding from 39 countries at a difficult time for financial services, they see significant change in how risks are perceived and prioritised.

Elaine Tumicki writes in Product Matters, the newsletter of the Society of Actuaries' Product Development section: With new life insurance products and features coming out at a break-neck pace over the last several years, life insurers may have felt like they were on a treadmill, with the speed slowly but steadily increasing. The growing reliance on independent distribution requires companies to stay ahead of —or at least keep up with—their competitors if they want to stay on the shelf. Improving speed-to-market has become a key component of life company strategy. What have companies been doing to address this ever-increasing challenge?

Universal life and indexed universal life continue to be key areas of interest in the life insurance market today. Milliman, Inc. conducted its second annual comprehensive survey aimed at addressing UL/IUL issues. Survey topics were determined based on input from Milliman consultants, as well as participants in the 2007 UL/IUL survey.

Milliman white paper.

Assessment tools that assign risk scores to insureds—or potential insureds—based on their prescription histories are increasingly used by actuaries and others within health insurance organizations to assess future health risk.

The downturn affecting the financial markets is having a significant impact on the life insurance industry. Glenn Cunningham, Executive Vice President of Life Reinsurance, discussed the ramifications with Robert Klein, Associate Professor of Risk Management and Insurance and Director of the Center for Risk Management and Insurance Research at Georgia State University. Dr. Klein believes that unprecedented events have exposed regulatory and reporting weaknesses. However, he stresses that prudent regulation should not interfere with how companies respond to customer needs, and that greater transparency should be the goal of any reform.

A review of life insurance sales statistics and selected U.S. Census data offer interesting information on the relationship between macroeconomic changes and demand for term life insurance. LIMRA’s annual U.S. Individual Life Insurance Sales Trends and demographic trends from the U.S. Bureau of the Census suggest that term sales recover relatively quickly following an economic downturn.

Milliman experts reveal the status of newly developed valuation bases applicable to IFRS 4 phase II, MCEV principles, and Solvency II, and help insurers maintain consistency among these various methods of risk reporting.

A group in the United States working for state insurance regulators has green-lighted several proposals submitted by the life-insurance industry in recent weeks aimed at lowering insurers' capital and reserve requirements, the Wall Street Journal reports.

During the volatile months of September and October, the hedging programs developed to protect variable annuities (VAs) with guarantees were, based on an internal study, 93% effective, saving an estimated $40 billion in industry-wide assets for the insurance companies that write these products.

A U.K. life insurer improved its risk and financial management capabilities with the help of more sophisticated models based on a replicating portfolio of its liabilities.

In today’s competitive term life insurance market, direct writers are revisiting their list of pricing assumptions to develop more accurate forecasts of future performance. The mortality improvement assumption is one that is under close scrutiny.

This paper highlights the menace of overweight and obesity which are on the rise. Health care systems and insurance industries are directly affected. Liability claims are on waiting. The food related damage claims are costly. Insurers are therefore driven to find a solution: classify overweight and obesity as a group, adjust their premium to reflect the cost, and justify the classification and the adjustments.

Major changes in screening protocols are necessary if life insurance is going to remain a player in the financial services revolution, say Hank George and Tia Sawhney in this Contingencies piece.

http://www.soa.org/files/pdf/2008-orlando-annual-40.pdf

Presentation at the SOA Annual Meeting & Exhibit, October 2008.

Presentation from SOA Annual Meeting in Orlando, October 2008.

Presentation at the SOA Annual Meeting & Exhibit, October 2008.

Article in Small Talk, the newsletter of the SOA's Smaller Insurance Company Section.

The Pension Protection Act of 2006 includes some important tax rules affecting combination plans that feature life or annuity plans coupled with long-term care insurance (LTCI). Many of these rules will become effective Jan. 1, 2010. In some cases, the rules will be applicable to policies on the books prior to that time. Among the benefits resulting from these new rules, the most notable would seem to be the clarification of tax treatment of annuity/LTCI combination products.

Explores the difficulties in analysing and handling Child CI claims and looks at how providers generally manage their risks via benefit design.

A discussion of the risks and opportunities that face the health discipline.

An actuary uses his skills and develops some new tones to put a face on racial disparities in his hometown.

Here's the latest information on principle–based approach from those in the know.

Paper by Rick Schurr, ASA, MAAA at the SOA Actuarial Practice Forum.

Despite current conditions in the financial markets, the convergence of insurance and capital markets will proceed because, quite simply, there’s no stopping an idea whose time has come. Nevertheless, life insurers are still learning about the dynamics of the capital markets as well as the benefits and limitations of this source of funding, especially for redundant AXXX/XXX reserves., says Glenn Cunningham, Executive Vice President, Life Reinsurance at Transamerica Reinsurance.

http://www.transamericareinsurance.com/Media/media_associateArticle.aspx...

In today's marketplace, product pricing and responding to competitive forces are widely recognized as the most important challenges facing personal lines insurers. Price optimization approaches, which balance profit and sales volume while applying customer behavior and competitive analysis, are now being used by the financial services industry for long-term value creation — and becoming increasingly relevant to personal lines insurance.

http://www.towersperrin.com/tp/showdctmdoc.jsp?url=master_brand_2/global...

Efforts to estimate year-end insurer liabilities reveal a lot about exposure to the current credit crisis and the steps needed to fully address emerging exposures.

http://www.towersperrin.com/tp/showdctmdoc.jsp?country=global&url=Master...

Some researchers now believe that certain diseases can be postponed simply by slowing down the aging process, says this piece in Contingencies.

The VBT Team has completed their work on the 2008 VBT. The report below details this work and the values can be found in the accompanying appendices.

http://www.soa.org/research/individual-life/2008-vbt-report-tables.aspx

Handouts from the Living to 100: Survival to Advanced Ages International Symposium for sessions such as:

• Distinguishing Health Status For Advanced Ages - Faye S. Albert, John M. Bragg, James C. Brooks, Dr. Bob Gleeson, Steven K. Holland, Ashely Thomas
• Demographic Implications of Aging Populations Internationally - Robert L. Brown, Roberto Ham–Chande, Steven G. Prus, N. V. Subramanyan
• Quality of Life of Elderly - Beverly J. Orth, Anna M. Rappaport,Eric Stallard
  

There has been a period of major change in the reinsurance landscape including the demise of Annuity and Life Re and the elimination of a number of companies with weaker franchises or lack of commitment to the market. As recently as 2000, the life reinsurance market included Lincoln National, American United Life, ING Re, Allianz and Employers Re—all of which either have exited the life reinsurance market, says Stephen Irwin writing in the SOA's Reinsurance News.

Making the case for what is currently referred to as longevity insurance. In its purest form, such insurance would be purchased with a single premium payment at the time of retirement.

Risk pools contribute to the stability of modern society by providing ways for individuals to deal with many types of financial disaster. The numbers and statistical distributions that actuaries work with represent real people. Participants in the public and private risk pools that we help to design and manage are often unaware of our presence behind the scenes. (In fact, their eyes glaze over when we try to tell them what we do.) But whether they know it or not, they depend on us.

Life carriers struggle with the notion of hedging pandemic risk. If an outbreak does occur, the process for estimating losses and determining reserves is unclear. Capital approaches do not consider probabilistic tail scenario risks. Quite simply, managing pandemic risk is an effort mired in doubt, though the potential for a devastating, multibillion dollar, worldwide outbreak is real. Traditional risk transfer tools have only limited utility in covering pandemic exposure. However, the depth and flexibility of capital markets may provide a robust alternative to traditional reinsurance.

Enterprise risk management has reached a critical juncture as the demands of regulators, rating agencies and a more volatile market environment heighten the pressure on insurers to put risk considerations at the heart of their strategy and operations. Ever focused on risk and supporting insurers, PricewaterhouseCoopers has once more committed to a detailed exploration of risk in relation to insurers."

Guaranteed life products have been driving the industry for several years; however, mounting industry pressures may lead to a reversal of prior trends.

As the industry moves towards a principles-based approach to valuation, many life insurers have focused on its potential effect on reserves. However, work is currently underway to apply similar principles to required capital, with similar expected results. But whereas plans for principles-based reserves will initially apply to new business only, proposals for principles-based capital (PBC) are currently targeting both new and inforce business.