Session 110 PD - VM-20 for Senior Management. Moderator: Carrie Lee Kelley, FSA, MAAA

Transcription

1 Session 110 PD - VM-20 for Senior Management Moderator: Carrie Lee Kelley, FSA, MAAA Presenters: Arnold A. Dicke, FSA, CERA, MAAA Amy J. Eby, FSA, MAAA Elinor Friedman, FSA, MAAA SOA Antitrust Compliance Guidelines SOA Presentation Disclaimer

2 2017 SOA Annual Meeting & Exhibit ARNOLD DICKE, AMY EBY, ELINOR FRIEDMAN, CARRIE KELLEY Session 110, VM-20 for Senior Management October 17, 2017

3 SOCIETY OF ACTUARIES Antitrust Compliance Guidelines Active participation in the Society of Actuaries is an important aspect of membership. While the positive contributions of professional societies and associations are well-recognized and encouraged, association activities are vulnerable to close antitrust scrutiny. By their very nature, associations bring together industry competitors and other market participants. The United States antitrust laws aim to protect consumers by preserving the free economy and prohibiting anti-competitive business practices; they promote competition. There are both state and federal antitrust laws, although state antitrust laws closely follow federal law. The Sherman Act, is the primary U.S. antitrust law pertaining to association activities. The Sherman Act prohibits every contract, combination or conspiracy that places an unreasonable restraint on trade. There are, however, some activities that are illegal under all circumstances, such as price fixing, market allocation and collusive bidding. There is no safe harbor under the antitrust law for professional association activities. Therefore, association meeting participants should refrain from discussing any activity that could potentially be construed as having an anti-competitive effect. Discussions relating to product or service pricing, market allocations, membership restrictions, product standardization or other conditions on trade could arguably be perceived as a restraint on trade and may expose the SOA and its members to antitrust enforcement procedures. While participating in all SOA in person meetings, webinars, teleconferences or side discussions, you should avoid discussing competitively sensitive information with competitors and follow these guidelines: Do not discuss prices for services or products or anything else that might affect prices Do not discuss what you or other entities plan to do in a particular geographic or product markets or with particular customers. Do not speak on behalf of the SOA or any of its committees unless specifically authorized to do so. Do leave a meeting where any anticompetitive pricing or market allocation discussion occurs. Do alert SOA staff and/or legal counsel to any concerning discussions Do consult with legal counsel before raising any matter or making a statement that may involve competitively sensitive information. Adherence to these guidelines involves not only avoidance of antitrust violations, but avoidance of behavior which might be so construed. These guidelines only provide an overview of prohibited activities. SOA legal counsel reviews meeting agenda and materials as deemed appropriate and any discussion that departs from the formal agenda should be scrutinized carefully. Antitrust compliance is everyone s responsibility; however, please seek legal counsel if you have any questions or concerns. 2

4 Presentation Disclaimer Presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinion or position of the Society of Actuaries, its cosponsors or its committees. The Society of Actuaries does not endorse or approve, and assumes no responsibility for, the content, accuracy or completeness of the information presented. Attendees should note that the sessions are audio-recorded and may be published in various media, including print, audio and video formats without further notice. 3

5 Agenda A brief recap of the VM-20 framework Industry trends Product impact Compliance and communication Earnings management Reinsurance and captives 4

6 Polling Question What is your role at your current company? a) Risk management b) Executive leadership or board c) General actuarial d) Valuation actuary and/or qualified actuary e) Pricing actuary 8% 19% 22% 40% 10% a) b) c) d) e)

7 Polling Question What is your understanding of VM-20? A. VM stands for Valuation Manual B. I understand it conceptually using company experience and models, unlocked reserves, all that new age stuff C. I understand the basic mechanics developing assumptions and models, the general balance between principles and prescriptions, turns out I can t just guess D. I m pretty comfortable with VM-20 I should probably be on the panel and will use every opportunity to passive aggressively let you know 45% 38% 10% 7% A. B. C. D.

8 VM-20 Overview

9 Principles Based Reserves It s Finally Here PBR is effective January 1, 2017 Companies have a three year transition period to implement PBR, PBR is mandatory beginning January 1, 2020 Implementation during the transition period can occur by product Small companies may be exempt from PBR 8

10 The reserve is the maximum of 3 components Deterministic Reserve A gross premium reserve that uses the company investment strategy under a prescribed economic scenario. Present values use discount rates based on projected net earned rates. VM-20 Minimum Reserve Net Premium Reserve A formulaic type reserve intended to serve as the floor reserve for any specific policy. Separate calculation for UL vs. term products. Defaults to current CRVM for other products. Stochastic Reserve Up to 10,000 scenarios from prescribed ESG. Calculate Greatest Present Value of Accumulated Deficiencies for each scenario. Discount rate is 105% of one-year Treasury rates. Stochastic Reserve based on CTE (70). 9

11 Industry Trends

12 Polling Question When is your company adopting PBR? A. Using the 3 year transition period for all products B. Adopting now for term and ULSG C. Adopting now for term and delaying ULSG D. Adopting now for ULSG and delaying term E. Adopting now for nonterm/ulsg products F. Adopting now for all products 76% 11% 6% 3% 5% 0% A. B. C. D. E. F.

13 Industry Trends What do you see in the industry for company adoption plans? Discuss the current level of preparedness you see across the industry 12

14 Product Impact

15 Polling Question Are you making changes to your product design as a result of PBR? A. Don t know yet B. Yes, changes to term products C. Yes, changes to ULSG products D. Yes, changes to term and ULSG products E. No, we are not expecting any changes F. Yes, we anticipate changes but are still working on the details and determining which products 36% 24% 24% 6% 4% 7% A. B. C. D. E. F.

16 Product Impact How will PBR alter term insurance product design? How will PBR alter guaranteed UL product design? With the focus on streamlined underwriting products currently in the individual life market, what is the impact of PBR on these new initiatives, if any? 15

17 VM-G Compliance and Communication

18 Polling Question Are Senior Management and the Board aware that they have new responsibilities under VM-20? A. Yes, and we have a plan in place to help them perform the responsibilities B. Yes, they are aware but we have not worked out the details C. No, was I supposed to do that? 54% 34% 13% A. B. C.

19 Polling Question Have VM-20 changes and expected impacts been communicated to senior management or the board? A. Yes, we performed a study and communicated results B. Yes, we have not performed a study but have discussed potential changes C. We have not had any discussions with senior management or the board 20% 48% 32% A. B. C.

20 Compliance and Communication What new responsibilities do Senior Management and the Board have under the revised SVL and the VM? Have Executive Management and Boards been sufficiently prepared for the impact of PBR? What are the considerations in determining who the qualified actuary is? 19

21 Compliance and Communication Do VM-G responsibilities of the qualified actuary create potential conflicts with Senior Management prerogatives? What items should be considered in determining who reports to the Board? 20

22 Earnings Management

23 Polling Question Has your company performed any VM-20 Impact studies or attribution analysis? A. Yes B. No 41% 59% A. B.

24 Polling Question How does your company expect VM-20 to impact earnings? A. We expect significant volatility on our VM-20 business compared to inforce business B. We expect some volatility on our VM-20 business compare to inforce business C. We are not too concerned about volatility on our VM-20 business 14% 54% 32% A. B. C.

25 Earnings Management How will VM-20 impact earnings volatility? What is the best way to monitor the impact changes in assumptions and VM-20 reserves is having on earnings from period to period? 24

26 Reinsurance and Captives

27 Polling Question Does your company expect changes to their external reinsurance agreements as a result of VM-20? (Choose all applicable) A. Yes, YRT agreements will change B. Yes, Coinsurance agreements will change C. Yes, I expect to have new reinsurance contract options D. No, I don t expect any changes 37% 51% 17% 17% A. B. C. D.

28 Polling Question Does your company expect changes to their captive/reserve financing agreements as a result of VM-20? (Choose all applicable) A. Yes, there will be no need for financing of term B. Yes, there will be no need for financing of ULSG C. Yes, I expect new types of arrangements to emerge for term D. Yes, I expect new types of arrangements to emerge for ULSG E. No, it will be business as usual for term F. No, it will be business as usual for ULSG 38% 31% 26% 17% 17% 2% A. B. C. D. E. F.

29 Reinsurance and Captives What do you think will happen to traditional reinsurance in the post PBR world? Do you see any new forms or structures of reinsurance in the post PBR world? 28

30 Reinsurance and Captives Some regulators believe that the premise of AG48 was it was needed temporarily and that captives would not be necessary post PBR. Do you agree? If a company does not have credible experience, especially for mortality, can they leverage reinsurer s data or other data? 29

31 Summary

32 Questions?

33 Contact Arnold Dicke, FSA, MAAA, CERA President AADicke LLC T E adicke@aadicke.com Amy Eby, FSA, MAAA VP, Appointed Actuary & Corporate Actuary Lincoln Financial Group T E amy.eby@lfg.com Elinor Friedman, FSA, MAAA Managing Director Willis Towers Watson T E elinor.friedman@willistowerswatson.com Carrie Kelley, FSA, MAAA Consultant Willis Towers Watson T E carrie.kelley@willistowerswatson.com 32

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