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Life PBR—Test-Drive the New VM-20 VM-20 Status Update Alice Fontaine, FSA, FCIA, MAAA, FCA Chairperson, Life Valuation Subcommittee

Copyright©©2007 2008by 2012 bythe theAmerican AmericanAcademy AcademyofofActuaries Actuaries Copyright SOAPBR—Test-Drive Life Life Spring Meeting: the New Session VM-20 58 Preferred Mortality The Year in Review, November 2007 September June 17, 2008 11-12, 2012 1

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AGENDA •Update regarding adoption •Changes from previous exposure draft •Additional Work

Copyright©©2007 2008by 2012 bythe theAmerican AmericanAcademy AcademyofofActuaries Actuaries Copyright SOAPBR—Test-Drive Life Life Spring Meeting: the New Session VM-20 58 Preferred Mortality The Year in Review, November 2007 September June 17, 2008 11-12, 2012 2

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Update Regarding Adoption •LATF adopted the 7/20 Exposure Draft on August 2 •NAIC “A” Committee adopted the VM on August 17 •Final NAIC adoption anticipated in September •Individual state legislatures should begin consideration of  SVL in 2013 •Revisions to the VM are expected to occur between now  and the end of the year and throughout the legislative  approval process •Effective date is currently projected to be 1/1/15 at the  earliest Copyright©©2007 2008by 2012 bythe theAmerican AmericanAcademy AcademyofofActuaries Actuaries Copyright SOAPBR—Test-Drive Life Life Spring Meeting: the New Session VM-20 58 Preferred Mortality The Year in Review, November 2007 September June 17, 2008 11-12, 2012 3

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Enabling Legislation Process  • State legislatures will only be considering adopting the SVL that  enables the VM.  They would not be adopting the VM itself • LATF is drafting a briefing document to help state legislatures  understand the enabling SVL and its relationship to the VM • Briefing document will include:  – Summary of PBR requirements and other information in the VM – Companion changes in the Standard Nonforfeiture Law for Life  Insurance to coordinate mortality assumptions and interest rates • All states are in session during the odd years. Important to get the  SVL on the 2013 legislative agendas Copyright © 2012 by the American Academy of Actuaries Copyright © 2007 by the Academy of Actuaries Life PBR—Test-Drive theAmerican New VM-20 September 11-12, 2012 The Year in Review, November 2007

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Steps for VM to Become Operative • VM becomes operative on January 1st  following: – SVL legislative enactment by at least 42 of the 55  jurisdictions (50 states, American Samoa, U.S.  Virgin Islands, District of Columbia, Guam, and  Puerto Rico); and, – SVL legislative enactment by states representing  greater than 75% of direct premiums written as  reported in 2008 annual statements;  and,  – NAIC adoption of VM by 42 members or 75% of  members voting, whichever is greater Copyright © 2012 by the American Academy of Actuaries Copyright © 2007 by the Academy of Actuaries Life PBR—Test-Drive theAmerican New VM-20 September 11-12, 2012 The Year in Review, November 2007

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Adopted‐VM‐20 (Changes Since Prior Exposure) •Reinvestment assumption – matrix similar to  default rates (with A/AA blend) •Net Premium Reserve formula modifications •Removed seriatim requirement from  deterministic reserve •Mortality Assumption redesign

Copyright©©2007 2008by 2012 bythe theAmerican AmericanAcademy AcademyofofActuaries Actuaries Copyright SOAPBR—Test-Drive Life Life Spring Meeting: the New Session VM-20 58 Preferred Mortality The Year in Review, November 2007 September June 17, 2008 11-12, 2012 6

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Other Changes to Adopted VM (Since Prior Exposure) •VM‐00: Process and Coordination items •VM‐01: Definitions •VM‐02: Minimum Nonforfeiture Mortality and  Interest •VM‐30: AOMR •VM‐31: Report and documentation •VM‐50/51: Experience and reporting •VM‐M: Mortality and Morbidity tables Copyright©©2007 2008by 2012 bythe theAmerican AmericanAcademy AcademyofofActuaries Actuaries Copyright SOAPBR—Test-Drive Life Life Spring Meeting: the New Session VM-20 58 Preferred Mortality The Year in Review, November 2007 September June 17, 2008 11-12, 2012 7

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Additional Work – Ongoing  Short Term •References and update procedure for default  rates, reinvestments and scenario generator; •Inclusion of all relevant mortality and morbidity  tables for  CRVM after implementation; •Adjustments to the Net Premium Method  •Adjustments to the procedures for making  changes to the VM

Copyright©©2007 2008by 2012 bythe theAmerican AmericanAcademy AcademyofofActuaries Actuaries Copyright SOAPBR—Test-Drive Life Life Spring Meeting: the New Session VM-20 58 Preferred Mortality The Year in Review, November 2007 September June 17, 2008 11-12, 2012 8

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Additional Work ‐ Mid Term •Review of Aggregate Margin approach; •Blanks and Quarterly reporting expectations;  allocation of deterministic and stochastic reserve  to policies; •Finalize 2014 VBT tables, mortality margins; 2014  CSO tables; •Review 98%‐102% Collar on starting assets; •Consider making use of IMR optional; Copyright©©2007 2008by 2012 bythe theAmerican AmericanAcademy AcademyofofActuaries Actuaries Copyright SOAPBR—Test-Drive Life Life Spring Meeting: the New Session VM-20 58 Preferred Mortality The Year in Review, November 2007 September June 17, 2008 11-12, 2012 9

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Additional Work ‐ Mid Term •Review limitation on Reinsurance modeling; •Establishment of Update Process for VM; •Examiner and Analyst tools for regulators; •Support for Statistical Agent Process & Analysis

Copyright©©2007 2008bybythe 2012 theAmerican AmericanAcademy AcademyofofActuaries Actuaries Copyright SOAPBR—Test-Drive Life Life Spring Meeting: the New Session VM-20 58 Preferred Mortality The Year in Review, November 2007 September June 17, 2008 11-12, 2012 10

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Additional Work ‐ Long Term •Review prescribed Reinvestment spreads; •Consider use of company’s own stochastic  generator; •Additional Net Premium Reserve  methodologies for other Life products •Variable UL •Whole Life •Etc. Copyright©©2007 2008bybythe 2012 theAmerican AmericanAcademy AcademyofofActuaries Actuaries Copyright SOAPBR—Test-Drive Life Life Spring Meeting: the New Session VM-20 58 Preferred Mortality The Year in Review, November 2007 September June 17, 2008 11-12, 2012 11

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Other work •Education •Practice Note •ASOP’s •Modeling in Life Insurance and Annuities •Principle‐Based Reserves •ERM Risk Treatment and Risk Evaluation

Copyright©©2007 2008bybythe 2012 theAmerican AmericanAcademy AcademyofofActuaries Actuaries Copyright SOAPBR—Test-Drive Life Life Spring Meeting: the New Session VM-20 58 Preferred Mortality The Year in Review, November 2007 September June 17, 2008 11-12, 2012 12

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CASE STUDY 1

Copyright © 2012 by the American Academy of Actuaries Copyright © 2007 by thethe American Academy of Actuaries Life PBR—Test-Drive New VM-20 September 11-12, 2012 The Year in Review, November 2007

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VM‐20: PBR for Life Products • Reserves under VM‐20 is greatest of: – Deterministic Reserve – Stochastic Reserve – Net Premium Reserve

• Exclusion Tests – Can be applied to certain products on an optional  basis – Separate tests for exclusion from deterministic  reserve and from stochastic reserve Copyright © 2012 by the American Academy of Actuaries Copyright © 2007 by thethe American Academy of Actuaries Life PBR—Test-Drive New VM-20 September 11-12, 2012 The Year in Review, November 2007

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VM-20 Status Update  
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