Fixed Annuity

Description

The Fixed Annuity product should be used for any fixed deferred annuity.

Cash Flows & Timing

The following table describes when during the month each type of cash flow occurs in the product.

Model Point File

Gender – The gender of the primary insured. Values should be entered as ‘Male’, ‘Female’, ‘M’, or ‘F’.

Initial Premium – The amount of premium paid into the policy on the issue date of the policy only. This field only affect premiums on new business model points. On in force policies, the issue date would be in the past and this field will be ignored.

Issue Age – The integral age at issue of the primary insured.

Issue Date – The original issue date of the policy. On new business model points, any date can be entered in this field. It will be overridden during the new business processing.

Initial Account Value – The account value of the policy on the projection start date. This field is only used for policies that are in force on the projection start date. It is ignored on new business model points which always start with a balance of $0.

Plan Code – A string value that is used to identify the plan that this model point is based on. The plan code serves as the lookup key for multiple tables on this product, including benefit patterns, premiums, lapses, commissions, expenses, and valuation assumptions.

Policy Count – The number of policies included in this model point. If multiple policies have been aggregated together, this value should be the total count of all policies.

Policy ID – The policy id is a string value that is used as an identifier for the model point. This could be policy number or some other unique ID from your administration system. The policy ID is for informational purposes. It does not affect any of the calculations on this product. It can be removed from the model point file definition if not needed.

Premiums Per Year – The number of premiums paid each year under the insured’s selected mortality. This should be a value of 1, 2, 4, 6, or 12.

Product Inputs

The following list of variables are defined on the library that provide input points for various items that are described. In addition, many of the product inputs are defined in the Plan Code Table.

Annual Premium Per Policy – Specifies the annual amount of deposits paid into the account value per year for each policy in force. This value will be divided by the Premiums Per Year from the model point file to determine that actual premium paid each month.

Annuitization Rate – The annual rate of annuitizations. By default, this rate is read from the Annuity Cash Flows table based on the attained age of the policyholder.

Competitor Rate – The competitor credited rate. This value represents the crediting rate being offered on competing products that a policyholder might potentially choose instead of the policy being modeled. This rate is used to drive the excess lapse rate on the policy.

Credited Rate – Current – The current annual interest rate being credited on the policy.

Credited Rate – Guaranteed – The current guaranteed annual interest rate.

Death Benefit Per Policy – The amount of death benefit payable in the current period if the policyholder were to die in that month. By default, this is set to be equal to the account value.

Commission Rate – The commission rate specifies the commissions paid as a percentage of gross premiums received in any given time period. The commission rates are looked up from the Commission Rate table based on the Plan Code from the model point file and duration since issue. The logic assumes that commissions are only specified for the first 10 policy years and that commissions are level thereafter.

Expenses – Acquisition – The acquisition expenses  paid on the issue date of the policy. The expenses are the sum of a flat dollar expense per policy plus a percentage of face amount expense. These expense amounts are read from the Policy Expenses tables based on the Plan Code from the model point file.

Expenses – Maintenance – The recurring maintenance expenses paid per policy each month. The expenses are the sum of a flat dollar expense, a percent of face amount expense, and a percent of premium expense. The first two are calculated as annual expenses and paid 1/12 per month throughout the policy year. The percent of premium expense is paid based on the policy mode. These expense amounts are read from the Policy Expenses tables based on the Plan Code from the model point file.

Experienced Mortality PAD – Factor for adjusting experienced mortality rates. Should be specified as a decimal value representing the amount of extra or reduced mortality to apply. A value of 0 will use the experienced mortality factors as-is. A value of 0.1 will use 10% higher mortality. And a value of -0.2 will use 80% of the experience mortality table rates.

Experienced Mortality Table – The mortality table name to be used for Experienced Mortality. This is used as the lookup into the Mortality Tables Input Table to get the experienced rates.

Lapse Rate – Base  – The annual lapse rate for the policy. By default, this rate is read from the Annuity Cash Flows table based on the attained age of the policyholder.

Lapse Rate PAD – Factor for adjusting lapse rates. Should be specified as a decimal value representing the amount of extra or reduced mortality to apply. A value of 0 will use the experienced mortality factors as-is. A value of 0.1 will use 10% higher lapses. And a value of -0.2 will use 80% of the lapse rates.

Maximum Age – The maximum age, or maturity age of the policy. This age is used to calculate the time period at which the policy will cease to provide any benefits are receive any further premiums.

Net Portfolio Rate – The net portfolio earned rate from the prior time index. This rate is used as an input to the crediting rate formula (see more below).

Partial Withdrawal Rate – The annual rate of partial withdrawals applicable for the current time period. By default, this is looked up from the Annuity Cash Flows table based on the attained age of the policyholder.

Surrender Charge Rate – The surrender charge expressed as percentage of account value that is payable upon surrender for the current time period. By default, this value is set to 0. It should be modified to apply whatever surrender charge rates or scale may be applicable.

Crediting Rates

The credited rates on the fixed annuity are calculated each time period based on the portfolio earned rate from the immediately prior time index.

The portfolio earned rate used in this calculation can be either 1) The actual portfolio net earned rate calculated in the Portfolio variables or 2) An inputted net earned rate. The selection of which rate to used is controlled by the Run Settings table.

The Run Settings table defines a switch to control which of these options get used named ‘FA Crediting Rate’. When the On/Off switch for ‘FA Crediting Rate’  is True in this table, the portfolio rate is taken from the portfolio variable calculations on the Portfolio. When it is false, the portfolio rate is read from the Value column on the Run Settings table.

Lapses

Lapses on the fixed annuity are comprised of two main parts: The base lapse rate (including PADs) and the excess lapse rate.

The base lapse rate is the lapse rate that always applies in all scenarios. It is comprised of a base lapse rate which is read from the Annuity Cash Flows table based on the attained age of the policyholder.  There are two PAD variables that are also applied on to this.

1. Lapse Rate Base Mult. Pad
2. Lapse Rate Flat Extra

The excess lapse rate is the additional lapses that occur as a result of competitive pressures and vary based on the economic scenario being run. The following parameters are used to modify how this affects the lapse rates

1. Lapse Rate – Excess Multiplier
2. Lapse Rate – Excess Exponent
3. Lapse Rate – Excess Threshold

The competitor rate used in this formula is read from the scenario file yield curve.  It is compared against the current credited rate on the policy, and if the competitor rate exceeds the current credited rate by more than the Excess Threshold, then additional lapses will be applied. The Multiplier and Exponent can be used to fit the lapse rate to the expected difference vs competitor rates.

Statutory Valuation

The statutory valuation of the Fixed annuity product is performed based on CARVM requirements for annuities.

The statutory reserve is the maximum of the following paths

1. Current Cash Surrender Value
2. PV of Maximum Guaranteed Future Surrender value at any future date
3. PV of Guaranteed Death Benefits Plus PV of Guaranteed Maturity Value

US GAAP Valuation

The US GAAP reserve assumes that the reserve is equal to the Account Value and that there are no other benefits that would require a separate reserve calculation under FAS91 or FAS97.