Assumption Governance and Review Proposal for Financial Studies
Implementing a robust system for assumption governance and review based on experience and studies. Includes making proposals for each assumption set, independent reviews, centralized documentation, and documenting impact. Testing investment returns, expenses allocation, mortality rates, and more with professional judgment and recent experience. Ensuring accurate financial calculations and informed decision-making.
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Presentation Transcript
Assumption Governance Assumptions based on experience studies Controls around studies calculations accurate Make proposal for how each assumption set Independent review of the proposal Centralized location for all documentation Documenting impact of any assumption change
Assumption SetttingIllus Act Testing Investment Returns based on recent experience Allocate investment income as done in practice Mortality & persistency based on recent experience when credible Professional judgment when not Direct sales expenses Agent commissions, overrides, other direct compensation
Assumption SetttingIllus Act Testing All Other Expenses Exclude direct sales expenses no double counting Choices fully allocated, marginally allocated, GRET Fully allocated expenses based on recent expense study Direct and indirect expenses. Direct obvious way to allocate Indirect not as obvious Marginally allocated Fully allocated without Indirect
Assumption SetttingIllus Act Testing GRET Generally Recognized Expense Table NAIC Rules If no GRET exists, must use fully allocated If GRET exists, any of three methods Marginally allocated only if expenses as large as GRET Taxes FIT and other taxes
Testing New Sales Test DCS Self-Support and Lapse-Support DCS and Assumptions come together Compare Asset Shares to Cash Surrender Values (CSV) Test until all policies gone Accumulated Cash Flow > CSV after duration 15
