2002 CSO Table, etc'

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2002 CSO Table, etc.

• 2002 Life Affiliates Meeting
• October 8, 2002
• Austin, Texas

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James N. Van ElsenFSA, MAAA, CPA, FLMI

• Consulting Actuary
• Van Elsen Consulting, Inc.
• Pella, IA

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Where is Van Elsen Consulting?
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Who is Van Elsen Consulting?_at_veconsulting.com

• James Van Elsen, FSA Pella, IA mail_at_
• Grant Hemphill, FSA Martinsville, IN grant_at_
• Mark Rowley, FSA Urbandale, IA mark_at_
• Mike Staudacher Indianola, IA mike_at_
• Terry Hilker Colfax, IA terry_at_

And Beth beth_at_ Sarah save_at_
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Pella, Iowa
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Alphabet Soup

• 2001 CSO
• AOMR
• GRET
• Annuity Nonforfeiture
• AGXXX
• XYZ
• ABCDEFG

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Why 2001 CSO?

• Improved Population Mortality
• Increased Underwriting
• Pressure from XXX Reserves on Term
• IRS

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Improved Population Mortality
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Increased Underwriting
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Why Not Sooner?

• Definition of Life Insurance
• Tax Reserves
• Maximum UL Charges
• Unitary Reserves Shielded Term

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Key Changes

• 25-Year Select Period
• ? 121
• No ETI Table

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Non-Smoker Male Ultimate, ANB
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In More Detail
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Select Period Age 45
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Whole Life Reserves Age 45
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20-Year Term Reserves Age 45
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Impact on Term

• Little ? on Term Rates
• Will Significantly Improve Ability to Guarantee
  Longer Rates
• Winner Male, NS
• Loser Female, SM
• Negative Impact on 2003 Sales?

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Impact on Whole Life

• May Significantly Decrease Premiums
• Will Reduce CVs
• Extend Past Age 100
• May Reduce Commissions

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Impact on Universal Life

• Significantly Reduce Guideline Premiums
• Significantly Reduce Maximum Charges
• Reduced Commissions?
• Higher Expense Loads?
• Last to Convert?

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Impact on Simplified Issue, Preneed, Final
Expense

• May Be Necessary to Strengthen Mortality Standard
• Will Have to Evaluate Tax Impact
• Premiums May Not Be Affected

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Impact on Extended Term

• Significantly Increases Length of Extended Term
• May Make it an Unaffordable Option

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Anticipated Timeline

• December 2002 Adopted by NAIC
• During 2003 Several States Adopt
• January 1, 2004 Optionally Effective
• January 1, 2009 Mandatory

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Taxes

• 807 (Tax Reserves) Depends on 26 States, Has
  3-Year Transition
• 7702 (Definition of Life Insurance) -
  Prevailing Mortality Table
• May Not Be Able to Sell CV Life Insurance in Some
  States

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AOMR Update

• ALL Companies MUST File Section 8
• States MAY Accept Domiciliary Filing

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Codification AOMR

• Effective 2002!!!
• May Require 2002 Compliance (NY?)
• May Have to Request Permitted Practice
• May Extend Deadline
• LHATF to Discuss on October 9

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Accreditation AOMR

• Expected to Be an Accreditation Standard
• May Not Occur Until 2004
• Many States Will Wait Until Standard Before
  Adopting

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AOMR 2001 CSO Mess - I
No 2001 CSO

• If 2001 CSO Not Adopted in Domiciliary
• Then, Cannot Use

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AOMR 2001 CSO Mess - II
Yes 2001 CSO

• If All Licensed States Adopt 2001 CSO
• Then, No Problem

Yes 2001 CSO
Yes 2001 CSO
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AOMR 2001 CSO Mess - III
Yes 2001 CSO

• If ALL Licensed States Adopt AOMR, AND
• ALL Licensed States Permit Domiciliary Opinion
• Then, No Problem
• Filings MAY Be Problem

Yes AOMR
Yes AOMR
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AOMR 2001 CSO Mess - IV
Yes 2001 CSO

• If ALL Licensed States Either
• Adopt 2001 CSO, OR
• Adopt AOMR, AND
• Permit Domiciliary Opinion
• Then, No Problem
• Filings MAY Be Problem

No 2001 CSO Yes AOMR
Yes 2001 CSO No AORM
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AOMR 2001 CSO Mess - V
Yes 2001 CSO

• If ANY Licensed States
• Does Not Adopt 2001 CSO, AND
• Does Not Adopt AOMR, OR
• Does Not Permit Domiciliary Opinion
• Then, Problem!!!

No 2001 CSO No AOMR
Yes 2001 CSO Yes AORM
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Solution to Problem - I

• Wait Until ALL Licensed States Compliant
• Competition May Respond Quicker
• Tax Problems May Develop
• May Be Mandatory Before All Adopt

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Solution to Problem - II

• File Use Where Approved
• Use 1980 CSO Where Not Approved
• File Separate Annual Statement In States Where
  Not Approved
• Must Include ALL Business
• Financial Impact MAY Be Large

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2003 GRET

• Used for Life Illustration Regulation
• January 1, 2003 Later Certifications
• Not a Factor if Fully Allocated

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GRET Branch Office
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GRET Direct Marketing
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GRET Home Service
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GRET Other
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Strategy for Coping

• Update All Certifications By December 31, 2002
• Evaluate Whether to Use Fully Allocated
• Test Products
• Make Adjustments, or
• Dont Illustrate Problem Products

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Annuity Nonforfeiture

• Current 1.5 Minimum Will Expire in Many States
• ACLI Proposal
• October 10 LHATF Meeting

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ACLI Proposal

• Indexed Minimum 1 - 4
• Prospective Minimums 85 Less 30
• Cash Value Lock-In
• No Retrospective Test

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Actuarial Guideline XXX

• Adopted at June 2002 Meeting
• Effective in Most States
• Closes Many (Some?) of the XXX Loopholes
• Did They Really Exist?

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XYZ Update

• Requires Nonforfeiture Values for UL w/ Secondary
  Guarantees
• Calculations May Require Systems Changes
• Hartford Proposal Now On Table
• 2001 CSO May Make Meaningless

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Additional Resourceswww.veconsulting.com

• 2001 CSO
• Spreadsheet
• Manual
• TAS Tables
• Table Manager
• State Surveys
• AOMR
• GRET
• Other Links

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Van Elsen Consulting, Inc.

• James N. Van Elsen, FSA, MAAA, CPA, FLMI
• [phone]
• [phone] (Fax)
• [phone] (Cell)
• 1411 W 4th St
• Pella, IA 50219
• www.VEConsulting.com
• mail_at_VEConsulting.com

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Questions?
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The End