A.1 Universal Life

Question 1

UL vs WL

Answer 1

• UL products have terms that are not fixed and gtd
• UL PH can vary amount and timing of premium
• Company can vary expenses and COI up to gtd amounts
• Benefits are not gtd at issue, vary based on premium, investment performance, charges

Question 2

UL fund value mechanic

Answer 2

Fund Value = accumulated cash before any SCs, loans
FV = Prior FV + GP - EC - COI + Int Credit - Partial Wd
EC = % of “load” + policy admin charge
COI = charge assessed for the DB

Question 3

basic Premium and DB designs for UL

Answer 3

DBs:
Option 1: Level DB = Face
option 2: level NAR = Face + CV

under the guideline premium test:
DB >= CSV * Corridor Factor

ULSG: policy stays inforce as long as stated premium is paid, even if FV is negative
ULSG 1. Stipulated premium design
- policy will not term if stipulated premium is paid and no withdraws are taken
- can have a catch up provision
ULSG 2. Shadow account design
- policy will not term as long as the shadow account > 0
- shadow account has alternate set of expenses charges, COI, and credit rates

Question 4

Process for determining CRVM for UL model reg

Answer 4

• Challenge: cannot calculate the PVFB - PVFP because they are not known in advance
• UL CRVM assumes that all UL contracts are permanent plans at issue
• at each valuation date the company determines if the policy is “on track” based on a ratio r: 0-100%- the closer a FV is on track, the closer the reserve will be to WL

Steps:
1. Calculate the Gtd Maturity Premium GMP
- GMP = level premium that endows contract at maturity date
2. Calculate the gtd Maturity Fund GMF
- GMF = projected future gtd fund value from the issue date forward
- assumes GMP is paid
3. at each val date, project the future FV
- starting FV = max(AV, GMF)
- assume GMP is paid
4. calculate NLP on a gtd basis from issue assuming the GMP is paid
- NLP = PVFB @ issue / PV GMP @ issue * GMP
5. Calculate PV gtd benefits using step (3)
6. at the val date, calc the r-ratio
r = min(1, FV / GMF)
7. calculate the net level reserves
= r * (PV Gtd Ben - PV NLP)
8. calc CRVM
CRVM = Net Level Reserve - r * unamortized CRVM EA

EA = PG Gtd Ben / a (x+1) - c(x)

Question 5

Concept of ULSG and reserve treatment

Answer 5

• Reserves for SG should be >= reserve for the type of insurance implied by SG
• ex: if SG gts that a policy will not term for 20 years if stipulated premium is paid, it is implied to be a 20 year level term contract
• in this example, would need to calculate the UL CRVM reserve and the 20 year level term reserve and determine which is greater

Question 6

Min reserve for low fund values, excess CSV

Answer 6

Excess CSV
UL reserves must be >= CSV

Low FV
reserve >= 0.5 * c (x+t)