1. Tim Cardinal FSA, MAAA, CERA, MBA Chicago Actuarial Association He Jiang Research Assistant University Of Illinois

2. pending substantially similar

3. What’s NEW ???

4.  Bypass product exclusion tests  Premium threshold  RBC threshold  No material ULSGs  Reserve methodology = CRVM  Reporting requirements Companywide Exemption

5.  SET ratio is now 6.0% (Stochastic Exclusion Test)  Use of company’s Asset Adequacy models to calculate ratios SET 4% Floor  Nonforfeiture rate ≥ 4%  To comply with Internal Revenue Code

6.  Deterministic Reserve  Permitted alternative methodology Direct Iteration Method Mortality Tables  2017 CSO  2015 VBT

7.  Clarification of deferred premium asset  Clarifications to policy loan cash flows  Pre-tax IMR  Mortgage risk classifications  Investment spreads  Mortality margins  Underwriting Criteria Score  Other Other & Updates

8. https://www.soa.org/files/research/exp-study/2015-mipbr-report.pdf  Published June 2015, conducted ~ June 2014  53 respondents - 15 expected to be exempt Overview/Awareness  SOA PBA Implementation Guide  29 aware, 8 familiar with https://www.soa.org/Files/Research/Projects/research-2013-pba-implementation-guide.pdf  ASOPs  26/30/33 had read exposed PBR for Life Products / exposed Modeling / Credibility ASOPs  Timeframe: 12-24 months from beginning steps to implement  13% / 34% had informed Board / Senior Management of increased responsibilities under PBR SOA-NAIC Survey

9. Resources  Nearly all believe system updates are needed to implement PBR  30% / 40% substantial updates needed to pricing / valuation  26/30/33 had read exposed PBR for Life Products / exposed Modeling / Credibility ASOPs  Majority anticipated a moderate increase in staffing, reallocation of existing staffing, and/or increased use of consultants and software  16% / 0 % had had developed training plans for actuarial / non-actuarial staff in preparation for implementing PBR  28 /15 anticipated purchasing software / using home grown  Majority had NOT determined cost of implementation/ongoing costs Survey Highlights

10. Mortality Assumption Setting and Modeling  Most anticipated changes to assumption setting process  Credibility, documentation, margin setting and approval  Most indicated completing mortality studies at least annually  Somewhat prepared to complete studies to extent required by PBR  More than half had NOT determined any of the pieces needed to perform the process needed to calculate VM-20 mortality  Only half reported modeling documentation was adequate Survey Highlights

11. Product Development Implications  Fair amount of uncertainty re: PBR impact on product offerings  Very few had discussed design/pricing implications with sales & marketing  < 40% had started discussions between pricing and valuation

12. Resources I

13. Resources II

14. 20 Year Level Term ART renewal Face = $1 million Issued to male age 40 nonsmoker Post-level gross premium is valuation mortality, year 21 gross premium = $4,970 Valuation Basis 2017 CSO M/F S/NS ALB Ultimate 5% semicontinuous, annual mean reserve First year valuation benefit cost = $1,425 Any deviations from these parameters are provided just in time with the experiment description. Term NPR Lab Policy Copyright © 2015 Actuarial Compass LLC. All Rights Reserved Part II

15. So your intuition would say it looks like this... And as we raise our level period Gross Premium we would expect….? NPR is just like Triple X, just a smaller hump. Right?

16. We compare 7 trial results using gross premiums: $300, $400, $500, $600, $700, $800, and $900. No other variables are being changed. Hypothesis 1. Terminal reserves for the 7 trials will ____ (in order of trials 1 to 7). (A) be equal (B) increase (C) decrease (D) increase then decrease (E) decrease then increase NPR Experiment 1 - Initial Premium

18. This experiment varies the initial level period gross premium. We compare 4 trial results using gross premiums: $600, $1,200, $1,800, and $2,400. No other variables are being changed. Hypotheses 1. Terminal reserves for the 4 trials will ___ (in order of trials 1 to 4). (A) be equal (B) increase (C) decrease (D) increase then decrease (E) decrease then increase NPR Experiment 2 - Initial Premium Part II

21. We compare 7 trial results using different gross premiums: $2,025, $2,050, $2,075, $2,100, $2,125, $2,150, and $2,175. No other variables are being changed. Hypotheses 1. Terminal reserves for the 7 trials will ___ (in order of trials 1 to 7). (A) be equal (B) increase (C) decrease (D) increase then decrease (E) decrease then increase 3. The maximum $2,175 NPR over all policy years is _________ the maximum $2,025 NPR. (A) 75%-85% (B) 100% (C) 105%-115% (D) 140%-150% Homework: NPR Experiment 3 - Initial Premium Part III

22. DR Experiment 2 - Bühlmann Credibility Factor Hypotheses 1.For the 10 year block in policy years 3-8, (trial 94-95%’s NPR+DPA) / (trial 83-87%’s NPR+DPA) is in the range _______. (A) 0-5% (B) 5-10% (C) 10-15% (D) 15%+ 3.For the 10&20 year block, the number of years using a credibility factor of 28-32% instead of 93-100% increases the minimum reserve is in the range _______. (A) 1-3 (B) 4-6 (C) 7-9 (D) 10-12 Experiments 2 explores mortality margins and credibility factors using the Bühlmann credibility method. We compare 11 trials. No other variables are being changed. Margins vary by attained age. The margins at ages 0-45 for the trials are:

23. Bühlmann Credibility Factor – 10 Year Term

25. Bühlmann Credibility Factor – 10&20 Year Term 20 Year Term

26. Bühlmann Credibility Factor – 10&20 Year Term

27. Part III: Discussion Topics Assumption Setting and Input Models and Uses Output Governance / Regulatory PBA Strategy / Planning

28. Contact Information Tim Cardinal tcardinal@actuarialcompass.com 513.607.3019 Questions …