B.1 Deferred Annuities

Question 1

Characteristics of Deferred Annuities

Answer 1

single and flexible premiums

loads:

• FEL
• SCs in early years

CSV = Premiums accumulated with interest - partial withdraws - SCs

• can be tax qualified or not
• premiums are tax deductible
• interest credited isnt tax if it remains in annuity
• distributions are taxed as ordinary income

Death benefit during accum period = max (AV, premium paid)

Sales inducemnets

MVAs

Question 2

How to classify Fixed Deferred Annuities

FAS 97 UL vs 97 Investments vs 91 investments

Answer 2

Most SPDA and FPDA fall under FAS 97 investments or FAS 91 during accum phase

significant mortality risk = FAS 97 UL.. such as high gt death benefits during accum

use FAS 97 investments when there are significant non investment revenues
- otherwise use FAS 91 investments if primarily investment revenues

Question 3

Applying FAS 97 (inv) to deferred annuities

Answer 3

• use FAS 97 UL to define reserves and DAC
• net GAAP liability = BenRes + URL - DAC
• BenRes = AV
• URL for FELs
• may require SIL (or asset) for persistency bonuses in later durations

Question 4

applying FAS 91 (inv) to deferred annuities

Answer 4

Policy Liab = AV
if no explicit AV: Liability = PV ben Cfs at assumed credited int rates

DAC = difference between policy liability and notional account value

no URL for FAS 91

Question 5

SOP Liability for excess annuitization benefits

Answer 5

may require an additional liability for benefits payable only on annuitization

• only when PV exp annuity payments > AV
• require a range of scenario testing

Formula:
SOPliab = SOPliab(t-1)*(1+i)
+ Ben Ratio * Assess(t) - Excess BEn

Ben Ratio = PV Excess Ben / PV(assessment during accum)