Edition

Life Insurance and Annuity Illustrations

Background and Purpose

Life insurance and annuity illustrations are an important part of the sales and ongoing policy maintenance process educating consumers on how the products could perform in a given set of circumstances. While candidates for Fellowship in the Society of Actuaries and even practicing actuaries may have a general knowledge of what they are and awareness of the regulations and applicable standards of actuarial practice, they may not know much about the intricacies of illustrations and illustration testing. The purpose of this project is to create a resource to improve actuarial practitioners’ understanding of illustrations. Additionally, this topic is not currently addressed in the exam curriculum. It is intended that selected sections of the report on this research would be suitable for inclusion in the Fellowship syllabus.

Research Objective

The Individual Life & Annuity Curriculum Committee is seeking a researcher to investigate and document the intricacies of illustrations and illustration testing. The following are examples of proposed topics that may be addressed:

  • Overview of illustrations
    1. Scope: What are illustrations and what are their purposes (definitions and variations by country/product)
    2. History of illustrations and/or product disclosures
    3. Common values in an illustration
    4. Common scenarios (current, midpoint, guarantees)
    5. Comparison tools/metric (CVIRR, DBIRR)
  • Fixed products illustrations
    1. Regulatory framework (Model 582, Model 580, Model 245, AG49, etc.)
    2. Illustration of NGE’s in products including calculations
    3. Illustration of guarantees in products including calculations
    4. New business versus inforce illustrations
  • Variable products illustrations
    1. Regulatory framework (Reg 270, FINRA, AG15, etc.)
    2. Illustrations of variable/unit-linked products
    3. New business versus inforce illustrations
  • Role of the actuary
    1. Professional standards
    2. Certifications and signatures
  • Role of others involved in the process
  • U.S. and Canada - Comparison of U.S. illustration framework to that of Canada. Other countries may also be considered.

Note that the list above is not meant to be exhaustive but merely examples of proposed topics that may be researched.

The researcher will summarize findings in a report with an accompanying Excel tool showing asset share calculations to be made available on the Society of Actuaries website. In presenting the information, life insurance illustrations under Model Regulation 582 should be the base for the paper from which all other types of illustrations are compared and contrasted.

Proposal Requirements

To facilitate the evaluation of proposals, the following information should be submitted:

  1. Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.

  2. An outline of the approach to be used (e.g. literature search, model, etc.), emphasizing issues that require special consideration. Details should be given regarding the techniques to be used, collateral material to be consulted, and possible limitations of the analysis.

  3. A description of the expected deliverables and any supporting data, tools or other resources.

  4. Cost estimates for the research, including computer time, salaries, report preparation, material costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.

    Please note that as a policy, the SOA Research Institute generally does not provide funding to cover academic institution overhead expenses.

    As a guide for developing the project budget, please review the Historical Project Cost Guide (see Appendix)

  5. A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions. The Individual Life & Annuity Curriculum Committee is interested in completing this project within three months from the completion of the engagement contract. Suggestions in the proposal for ensuring timely delivery, such as fee adjustments, are encouraged.

  6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

Selection Process

The Individual Life & Annuity Curriculum Committee will appoint a Project Oversight Group (POG) to oversee the project. The [sponsoring entity/POG] is responsible for recommending the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the POG will make the final recommendation, subject to Society of Actuaries Research Institute (SOA) leadership approval. An SOA staff research actuary will provide staff actuarial support.

Questions

Any questions regarding this RFP should be directed to Research-ML@soa.org.

Notification of Intent to submit Proposal

If you intend to submit a proposal, please email written notification by January 10, 2024 to Research-ML@soa.org.

Submission of Proposal

Please email your proposal to Research-ML@soa.org; proposals must be received no later than January 17, 2024. It is anticipated that all proposers will be informed of the status of their proposal by the end February 2024.

Conditions

The selection of a proposal is conditioned upon and not considered final until a Letter of Agreement is executed by both the Society of Actuaries Research Institute and the researcher.

The Society of Actuaries Research Institute reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available. The Society of Actuaries Research Institute also reserves the right to redirect the project as is deemed advisable.

The Society of Actuaries Research Institute plans to hold the copyright to the research and to publish the results with appropriate credit given to the researcher(s).

The Society of Actuaries Research Institute may choose to seek public exposure or media attention for the research. By submitting a proposal, you agree to cooperate with the [Society of Actuaries/sponsoring entity] in publicizing or promoting the research and responding to media requests.

The Society of Actuaries may also choose to market and promote the research to members, candidates and other interested parties. You agree to perform promotional communication requested by the Society of Actuaries Research Institute, which may include, but is not limited to, leading a webcast on the research, presenting the research at an SOA meeting, and/or writing an article on the research for an SOA newsletter.

Conflict of Interest

You agree to disclose any of your material business, financial and organizational interests and affiliations which are or may be construed to be reasonably related to the interest, activities and programs of the Society of Actuaries Research Institute.

Appendix

The cost ranges below are intended as a guide for budgeting project costs for proposals in response to SOA Research Institute Request for Proposals (RFP). Please note these figures span the 33rd to 66th percentiles for all projects as well as projects that involve a specific approach (lit review, survey, etc.). They are based on historical costs over several recent years. Expected costs for some RFPs may fall outside these ranges depending on the nature of the work and resources required for completion.

All Contracted Projects

This category includes all contracted projects that the Institute has undertaken within the last several years.

The 33rd-66th percentile project costs range is $25,000 - $50,000.

Literature Reviews

This category includes projects that involved only a literature review or the cost for the portion of a larger project that included a literature review.

The 33rd-66th percentile project costs range is $15,000 - $20,000.

Surveys

This category includes all projects that had a survey as their primary component.

The 33rd-66th percentile project costs range is $28,000 - $55,000.