Universal Life

Description

The Universal Life product is used for any kind of UL product with a fixed account value. It can be used for products with or without secondary guarantees.

Cash Flows & Timing

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

Model Point File

Death Benefit Option – The death benefit option specifies the death benefit paid upon death. The following options are available with the option specified as an integer value on the model point file.

1. Level Death Benefit – The greater of the face amount or account value will be paid out.
2. Level NAAR – The face amount plus the account value will be paid.

Face Amount – The face amount of insurance for this policy. If this model point includes multiple policies in the policy count, then this value should be entered as the average face amount per policy.

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

Initial Account Value – The account value balance as of the projection start date.

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.

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.

Smoker Status – The smoker status of the primary insured. Values should be entered as ‘S’ for smoker and ‘NS’ for non-smoker.

Substandard Rating – Amount of substandard extra % for the policy. This should be entered as a decimal value specifying the percent of base mortality to use for the policy. For example, a value of 1  would indicate a standard rating, or 100% of the base mortality. A value of 1.5 would indicate 50% extra mortality.

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.. 

COI Rate – Current – The currently charged Cost of Insurance rates for the policy.

COI Rate – Guaranteed – The guaranteed maximum COI rates for the policy.

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.

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

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

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.

GAAP – Annual Lapse Rate – Lapse rate assumed for GAAP valuation calculations. By default, this uses the same lapse rates as experienced lapses.

GAAP Val Interest Rate – The valuation rate used for GAAP valuation. This rate is read from the Plan Code table.

GAAP Val Mortality Table – The mortality table name to be used for GAAP Valuation Mortality. This is used as the lookup into the Mortality Tables Input Table to get the GAAP Valuation rates. The table is read from the Plan Code table.

Gross Premium Rate – The annual gross premium rate. The rate should be expressed as a decimal value to be directly multiplied by the face amount (not as a rate per 1,000).

Lapse Rate – Annual  – The annual lapse rate for the policy. By default, this rate is read from the Lapse Rates table by plan code and policy year.  Lapses are applied evenly throughout the year on policy payment dates only.  Policies with annual premium payments will experience the full annual lapse on the policy anniversary while monthly payment policies will have a monthly equivalent lapse occur each month.

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.

Mortality Age Basis – The age basis of the mortality tables used by this policy. The value is read from the Plan Code table. This value will normally be ‘ANB’ (Age Nearest Birthday) or ‘ALB’ (Age Last Birthday) but other custom values can be used as long as the Mortality Table Lookup table is updated to handle those new values.

Premium Tax Rate – The premium tax rate applicable to premiums received for this policy. By default, the product assumed 0 premium taxes are paid.

Crediting Rates

The credited rates on the Universal Life product 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 ‘UL Crediting Rate’. When the On/Off switch for ‘UL 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.

Statutory Valuation

The statutory valuation of the product is performed based on CRVM requirements for UL policies.

Guaranteed death benefits are projected from the policy issue date to calculate and a goal seek is run to calculate the guaranteed maturity premiums.  The guaranteed death benefits are re-projected using the Force Recalc variable option from each future time index as well  in order to calculate CRVM resreves based on the then-current account value.

Statutory valuation calculations are done on a discounted continuous basis using modal premiums wherever possible (unless specifically required by regulations).  Death benefits are calculated monthly and assumed to be paid immediately throughout the month. Premiums are assumed to be paid in accordance with the policy premium mode.

US GAAP Valuation

The US GAAP valuation calculates reserves under FAS97 UL.  The benefit reserve is assumed to be equal to the account value on the policy. The product will also calculate future Estimated Gross Profits (EGPs) which can be used to calculate DAC amortization.

GAAP calculations are done on a discounted continuous basis using modal premiums. Death benefits are calculated monthly and assumed to be paid immediately throughout the month. Premiums are assumed to be paid in accordance with the policy premium mode.