A.2 Valuation Manual

Question 1

PB valuation vs Formula based valuation

Answer 1

Formula Based valuation

• Methods used before VM and AG 43
• Prescribed assumptions and formulas for all companies based on policy issue date
• simplified model of CF and a single set of assumptions
• expenses not explicitly recognized in the formulas

PB valuation

• More realistic CF for: Premiums, Expenses, II, capital gains, asset defaults, Death & morbidity, withdraws, PH behavior
• SR and DR = use company experience for assumptions instead of prescribed
• use stochastic methods alongside deterministic
• focus is surplus under a wide range of scenarios
• CF models involve 30+ years of projected assets and liab under range of scenarios

Question 2

5 VM sections

Answer 2

1. Intro
   - describe reasons for VM
   - discuss NAIC goals for VM: uniformity among states, efficient to update valuation requirements
2. Reserve Requirements
   - describe min reserve requirements which are defined by the major product types from SSAP 50
3. Actuarial Opinion and report requirement
4. Experience Report requirements

5. Valuation Min Standards
VM 20 = Life
VM 21 = Variable Annuity
VM 31 = PBR Reporting requirements
VM 50 = Experience reporting
VM-G = Corporate Governance