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4. (9 points) saturn life is developing a new variable annuity product that will provide: • 50 different investment options. • a variety of guaranteed death, annuity, income and withdrawal benefit options. • asset-based expenses that vary with the account value of the policy. (a) define each step in the product development process according to loma. (b) determine and define for this product development project the applicable: (i) corporate growth strategy, (ii) marketing strategy and (iii) type of innovation. (c) in developing expected lapse assumptions for the new product: (i) list the factors affecting lapse rates. (ii) explain how the expected lapse assumptions would be impacted by each of the proposed design features, and justify your answer. (d) the entire product development project is expected to cost $10 million. saturn’s variable annuity products are expected to return 1% of premium annually after-tax. the projected increase in sales is: year without new product with new product 1 10% 210% 2 10% 60% 3 10% 10% calculate the project’s break-even year. show all work. course 8i: fall 2005 -5- go on to next page individual insurance – u.s. morning session question 5 pertains to the case study. 5. (13 points) as the product actuary for mercury life, you have been asked to analyze the feasibility of adding an equity indexed annuity to the fixed annuity product line. (a) (5 points) you are given the following product design: • the index period is 6 years. • the investment earnings rate is 5.5%. • the first year commission is 4.0% of premium. • other expenses and profit equal 5.0% of premium. • guaranteed minimum account value is calculated using 90% of premium and 3.00% interest. • index account value is calculated using 100% of premium and 100% participation rate guaranteed for 6 years. (i) calculate the affordable option budget. show all work. (ii) determine changes and additions to the product design that would reduce the actual option costs down to the affordable option budget. (b) (1 point) explain the impact of equity volatility on equity indexed annuity pricing. (c) (5 points) you are given the results from the initial pricing run: time profit 0 - 25 1 60 2 0 3 0 4 42 5 12 6 - 70 assume mercury life is willing to pay 5% for borrowed money. (i) calculate the roi for this product using the generalized roi calculation method. show all work. (ii) assess the calculated roi compared to mercury life’s profit objective. (iii) explain practical problems related to calculating roi. (d) (2 points) evaluate the feasibility of adding an equity indexed annuity with respect to mercury life’s target market. course 8i: fall 2005 -6- go on to next page individual insurance – u.s. morning session 6. (9 points) you are reviewing a block of flexible premium ul policies. (a) describe steps to determine the minimum cash surrender value for this type of product according to the naic universal life model regulation. (b) your analysis reveals a widening gap between value-based reserves and cash values. you believe a new experience study is needed to revise the value-based reserve lapse assumptions. (i) you are given: • the existing lapse assumption is based on an internal study conducted in 1999 of lapses of permanent life policies during the period 1996 to 1998, which included data from an acquisition in 1996. • current portfolio lapse data cannot distinguish between fixed and flexible premium ul policies. • industry experience is trending toward lower lapse rates. explain how the key principles in studying experience to set assumptions provide guidance for these specific issues. (ii) describe considerations when adjusting a best estimate experience assumption with provision for adverse deviation. (c) an illustration for a male, issue age 45, flexible premium ul policy indicates the coverage remains level for the life of the policy assuming the policyowner continues to pay the same annual premium since issue. you are given: current annual premium $160 guaranteed maturity premium $200 crvm net level premium $150 valuation net level premium $125 guaranteed maturity fund at duration 10 $900 actual fund at duration 10 $700 cash value at duration 10 $650 pv of benefits at duration 10 $2,500 45:50 a 13.75 55:40 a 11.25 calculate the 10th year (i) crvm minimum terminal reserve. (ii) statutory gain or loss upon surrender. show all work. course 8i: fall 2005 -7- go on to next page individual insurance – u.s. morning session   |
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