Group of Policies Premiums come IN Investment Incomes

Group of Policies… Premiums come IN Investment Incomes IN Death and Surrender benefits get paid OUT Expenses get paid OUT Taxes get paid OUT Ignore reserves, not a cash item

Year Premium Investment Benefits Commissions Earnings 1 $2, 840 (95) 82 2, 414 2 $2, 725 69 111 136 Other Taxes Cash Expense Flow s 2, 106 (577) (1, 280) 47 (315) 2, 815 Accumulated Cash Flow (1, 280) 1, 535

Assumptions: Earned rate on investments Lapse and mortality rates Expenses Tax rates Any other assumptions important in pricing your particular product

Factors impacting fund value on a UL policy… Cost of Insurance rates expense charges crediting rates surrender charges.

Calculating fund value: Premium IN, Interest Crediting IN, Cost of Insurance OUT, Expense Charges OUT, Withdrawals OUT

Compare Projected asset shares, to Projected cash surrender values

ONE HOUR LATER

Nonguaranteed elements Cost of insurance rates Expense charges Crediting rates

ONE HOUR LATER

Illustrations: • Basic • Supplemental • In Force

References: Code of Professional Conduct Qualification Standards NAIC Model Illustration Regulation ASOP 24, “Compliance with the NAIC Life Insurance Illustration Model Regulation”. ASOP 12, “Risk Classification” ASOP 23, “Data Quality” ASOP 41, “Actuarial Communications” ASOP 56, “Modeling”

Nonguaranteed elements Cost of insurance rates Expense charges Crediting rates A scale is a set of nonguaranteed elements

Disciplined Current Scale (DCS) – keeps illustration actuary honest Nonguaranteed elements set in a specific way Assumptions: Earned rate on investments Lapse and mortality rates Expenses Tax rates

Disciplined Current Scale (DCS) – more • Use assumptions to project asset shares. • Use assumptions and DCS nonguaranteed elements to project cash surrender values. • If asset shares > cash surrender values at durations after 15 you pass the test. • It is duration 20 and after for some joint life policies.

Currently Payable Scale • How nonguaranteed elements currently set Illustrated Scale • How nonguaranteed elements set in illustrations. Cannot exceed the lesser of the currently payable scale or the DCS. Simplest if three scales the same.