A.1 Term Life

Question 1

Term product Classification

Answer 1

4 broad categories:

1. Yearly renewable and convertible term
   - level DBs with premium payable over the entire benefit period
   - premium increases on anniversary for increasing mortality costs
   - “renewable” = policy will automatically renew at anniversary as long as premium is paid
   - Convertible = convert policy to WL without going through UW
2. N-Year renewable and convertible term
   - level DB until expiry age, then terminate without value
   - Premiums payable over entire benefit period, increase every n-years
3. N-Year level premium term
   - Level DB until expiry age, then terminate without value
   - premium is level for n years, then increases annually
   - can be convertible
4. N-Year decreasing term
   - DB decreases over the benefit period
   - used as a payoff for mortgages on death

Graded premium whole life - WL policy with level DB but premium increase annually for the firs n years, then level

• increasing premium = 0 CSV
• functionally like a term product

Question 2

Why guideline XXX exists

Answer 2

• Before XXX, companies can hold low or negative reserves for term due to the increasing premium schedule

Question 3

applying Guideline XXX

• segmented vs unitary reserves
• basic reserves

Answer 3

Steps:

1. Determine contract segments
2. calculate segmented net premiums
3. calculate segmented reserves
4. calculate unitary reserves
5. calculate basic reserves = greater of (3) or (4)

Segmentation:

• divide the premium paying period into segments based on the slope of the GP
• a new segment is formed when: GP ratio year-over-year >= mortality ratio

Segmented reserves:
= PVFB remaining in current segment - PVNP remaining in current segment

Unitary reserves:
- Reserves over the entire period treating the entire lifetime as one single segment

Basic Reserves = Max(Unitary, Segmented)

Question 4

Deficiency reserves for term life

Answer 4

• required if GP < NP

NPs can recalculated using one of the select mortality factors:

1. 10-year select in 1980 amendment to SVL
2. 20 year select factors in guideline XXX

• Companies can use X% of the select factors for just the first segment
• X-Factor is based on the company experience

deficiency reserves = excess of (b) over (a)
a = basic reserve using GP when GP < NP (adjusted NP using select factors and X-Factors)
b = Basic Reserve

Question 5

Unusual CV

Answer 5

Gtd CV is unusual if any future gtd CV exceeds the prior value by more than the sum of:

1. 110% GP
2. 110% * (Prior CV + GP) * NF IR
3. 5% of year 1 SC