3.3.1 For Future Sales of a New or Existing Product
If the policy classes for future sales have not been defined in the NGE framework, or if they have been defined, but in the actuary’s professional judgment are incomplete, do not reflect changing circumstances (for example, new underwriting practices, or new profit or marketing objectives), or are inconsistent with the items below, the actuary should recommend the establishment of or changes to the policy classes that areb. appropriate for each NGE (a particular policy may be assigned to one or more policy classes at issue based on anticipated experience factors and NGEs, for example, one policy class for credited interest and a different policy class for COI charges);
c. appropriately reflective of differences within anticipated experience factors (for example, smoker versus nonsmoker mortality);
d. refined appropriately to mitigate antiselection; and
e. not expected to be redefined after issue.
The actuary may recommend policy classes that use different grouping methodologies based on policy duration. For example, a policy class may be defined in terms of a select and ultimate mortality method, or a policy class may be defined in terms of an investment year interest crediting method that uses a new money method in the early durations and a portfolio method in the later durations.
When recommending policy classes for future sales, the actuary should take into account the policy provisions, the structure of guaranteed elements and NGEs, the date on which the recommended policy classes would take effect (for example, policies issued before or after a particular date could be in different policy classes), and the underwriting characteristics and marketing objectives for the product. The actuary may also take into account any additional relevant factors.
3.3.2 For In-Force Policies
The actuary should recommend that in-force policies remain assigned to their policy classes, unless there is new information that is material to the anticipated experience factors and supports reassigning the policies to different policy classes. For example, a change in one state’s premium tax that affects some policies within a policy class differently than it affects others could justify reassigning such policies to a different policy class.In addition, the actuary may recommend combining or redefining policy classes if, in the actuary’s professional judgment, such combinations or redefinitions would be appropriate. For example, if the experience for a policy class is not credible, the policy class could be combined with other policy classes for the purposes of determining anticipated experience factors.
When recommending a change in the assignment of policies to policy classes, or combining or redefining policy classes, the actuary should follow the guidance in section 3.3.1.
