A.1 AG 38 & 48

Question 1

Motivations for AG 38

similarities with Guideline XXX

Answer 1

• ULSG was added into XXX as it was a similar design
• Companies felt like XXX created redundant reserves for ULSG
• Companies responded with new ULSG designs that minimized regulation effects
• regulator response: AG 38, to clarify the intent of XXX
• AG 38 = AXXX

Question 2

Identify the 8 product designs in AG 38

reserve approaches?

Answer 2

1. 10 year level term, then increasing premiums for 20 years
   - reserve approach: treat initial premium as gtd for all 30 years
2. Term policy with illustrated level premium for 30 years, but only first 10 years are gtd
   - reserve approach: treat initial premium as gtd for all 30 years
3. 10 year level term, then increasing premiums for 20 years
   - but PH is protected from increases via a second company/ reins
   - reserve approach: treat initial premium as gtd for all 30 years
4. policy with high GPs that are offset by gtd dividends
   - reserve approach use net premium in reserve calculation
5. re-entry 10 year level term with loose re-entry UW OR; UL that allows lapse and re-entry as long as stipulated premiums are paid
   - reserve approach : treat re-entry period and premiums as continuation of original gtds
   - any segmetns are determined based on new premiums relative to original from issue
6. Reinsurance treaty provides 30 years of level premium but only gtds first 10 years
   reserve approach: reinsurer should calculate reserves using a 30 year segment
7. UL Policy with catch-up provision
   - where insured has unlimited right to pay past due premium to keep policy inforce
   - reserve approach:
   - compute initial basic/deficiency reserves assuming stipulated premium is paid
   - reduce basic reserve and deficiency reserve by catch up amount
8. UL policy gts coverage as long as accumulated premiums > SG requirement
   reserve approach:
   a. determine GP that satisfies SG requirement
   b. calc basic + deficiency reserves using GP
   c. determine premium paid in excess of min GP
   d. calc single payment necessary at val date to fully fund remaining SG. then calc (c) / single payment
   e. calc the NSP on the val date for the remainder of the SG period using mortality from XXX
   f. additional premium = (e - b) * d
   g. reduce deficiency reserves = def reserve from (b) * (1-d)
   h. calc the actual reserves = min(e, f + b) - SC
   i = increase in basic reserve = h - g

Question 3

5 revisions to AG 38

Answer 3

pg 73

Question 4

Purpose of AG 48

requirements for ceding companies and AA’s

Answer 4

AG 49 Goal: establish standards governing XXX reserve financing transactions

captive - a reins created and owned by an insurance company that has lower reserves and collateral requirements

• companies ceding XXX reserve to captives/reins that arent certified or dont comply with stat and RBC rules must satisfy certain conditions to take a reserve credit:
  1. cede must hold gross reserves according to current reserve guidance
  2. cede must satisfy primary security requirement:
• resins must pay primary security collateral based on actuarial method
• actuarial method = ~ PBR in VM 20
• Primary security can be cash
• reserves in excess of Primary security requirement may be collateralized by any acceptable security
  3. at least one party must hold an RBC cushion
  4. cede’s domestic regulator must approve of the transaction

Requirements for AA

1. must analyze each reins treaty to determine if primary and other security requirements are satisfied
2. make statements in actuarial opinion - analysis done for each reins contract, if primary security is satisfied
3. document AG 48 analysis in actuarial memorandum
4. issue qualified opinion