Understanding Actuarial Practice

Transcription

1 Understanding Actuarial Practice Stuart A. Klugman Editor Jeffrey A. Beckley Patricia L Scahill Matthew C.Varitek Toby A. White C SOCIETY OF ACTUARIES

2 \ N - \ \ \ \ ' \ \ PARTI: INTRODUCTION 1 I Introduction Purpose of This Textbook Prerequisites How to Use This Textbook Actuarial Work and the Actuarial Profession 6 Z Actuarial Science and the Actuarial Profession A Brief History of Actuarial Science and the Actuarial Profession What Actuaries Do and What Sets Them Apart Financial Security Systems 13 " 2.4 Insurance Industry Overview Actuarial Areas of Practice Key Competencies for Actuaries 34 J> The Actuarial Control Cycle Introduction Versions and Evolution of the Actuarial Control Cycle An Expanded Discussion of the Control Cycle Control Cycle Examples Some Conclusions about Actuarial Work and the Control Cycle 51 Principles of Actuarial Science 53 PART 2: INVESTMENTS 55 J Introduction and External Factors Overview of Investments Section External Factors Affecting Investment Decisions 57 iii

3 iv 0 Interest Theory Types of Interest Rates Two Approaches to Interest Capital Budgeting Annuities 75 / Asset Types Underlying Assets Derivatives Assets Used in Insurance Company Portfolios 100 O Investing/Portfolio Management Introductory Investment Issues Mean-Variance Analysis Other Issues 113 y Finance Models and Data Capital Asset Pricing Model Other Financial Modeling Frameworks Data and Estimation 133 I U The Term Structure of Interest Rates Interest Rates 139, 10.2 Yield Curves 143 I 1 Asset and Liability Management Interest Rate Sensitivity Immunization More on Asset and Liability Matching Asset and Liability Management Risk Measures for Life Insurance Companies 164

4 PART 3: LIFE INSURANCE AND ANNUITIES 169 I Z Introduction 171 I D Types of Coverage Life Insurance Annuities 213 External Forces and Life and Annuity Products Cultural and Social Factors Demographic Trends Economic and Business Environment Government Influences 236 I J Pricing Measuring Profitability Profit Measures Profit Testing Approaches to Profit Testing Pricing Tools Asset Shares Analysis of Book Profits Sources of Profit Company Models 282 I / Inputs for Profit Testing Investment Income Equity Returns Mortality Persistency Expenses 291

5 vi 18 Regulatory Influences on Profit Testing Reserves Reserve Model Nonforfeiture Requirements Income Taxes Required Surplus Premiums 332 I y Monitoring Results Why Monitor Experience What to Monitor Closing 341 PART 4: RETIREMENT BENEFITS 343 Z I Introduction to Retirement Plans External Forces Underlying the Need for a Retirement Income System History of Retirement Plans 355 Z Z Overview of Retirement Financial Security Systems Most Common Types of Formal Retirement Plans Government-Sponsored Social Security Systems Employer-Sponsored Retirement Programs Tax Structure of U.S. Employer-Sponsored Pensions The Role of the Courts in Retirement Plans Canadian Employer-Sponsored Pensions U.K. Pension System Mexican Pension System The Actuary's Role in Employer-Sponsored Defined Benefit Pensions Advantages of Having Retirement Income from Multiple Sources 387 Retirement Plan Design Defined Benefit and Defined Contribution Plans Hybrid Plan Design 394

6 vii 23.3 Allocation of Risks in Retirement Plans U.S. Pension Plan Design Canadian Pension Plan Design Using Retirement Plans to Manage an Employer's Workforce 404 Funding for Employer-Sponsored Retirement Plans Overview of Employer-Sponsored Defined Benefit Plan Funding Actuarial Assumptions Used in Defined Benefit Plan Valuations Terminology Commonly Used in Pension Funding Funding Methods Asset and Participant Data Needed for the Actuarial Valuation Selecting the Amount to Fund Actuarial Valuation Stakeholders and their Views 418 Pension Accounting in the United States Policy Reason for U.S. Pension Accounting Requirements Pension Accounting Requirements Inputs into Pension Accounting Calculations Responsibility for Company Financial Statements Pension Expense Pension Disclosure 422 Z 0 Modeling Actuarial Costs and Expense Actuarial Forecast Modeling System Uses of Actuarial Forecast Modeling for Retirement Plans 425 Z / Retirement Plan Solvency 427 PART 5: GROUP AND HEALTH INSURANCE 429 ZO Introduction to Group Insurance Principles of Insurable Groups Buyers of Group Insurance Products Sellers of Group Insurance Products 434

7 viii 28.4 Overview of Health Economics Key Influences on Health Care Funding Models Overview of Disability Insurance Overview of Long-Term Care Insurance Overview of Group Life Insurance 447 Zy External Factors Forces Driving the Need for Benefit Plans Cultural and Social Values Demographics Impact of Policy and Regulation 452 Jj U Pricing for Group Benefit Plans Data and Assumptions Network Management and Plan Design Estimating Claims Costs Projecting Costs to the Rating Period Calculating Benefit Factors Impact of Benefit Changes Calculating Manual Gross Premiums Experience Rating Reserving Definitions of Terms Short-Term Reserves Long-Term Reserves Evaluating Claim Reserve Adequacy Guidelines and Practice Standards for Reserves 504 Bibilography 505 Index 509