b. how the anticipated experience factors relate to NGE scales;
c. the consistency of NGE scales with policy provisions;
d. any limits on NGE scales due to regulatory constraints;
e. any limits on NGE scales due to guaranteed elements; and
f. the impact on or from reserve, profitability, capital, surplus, and marketing objectives.
The actuary may use approximation methods, such as smoothing and interpolation, when determining NGE scales.
If, in the actuary’s professional judgment, the actuary believes that following the determination policy when determining NGE scales would be inconsistent with the guidance in section 3.2, the actuary should consider discussing these inconsistencies with the insurer. The actuary should document any unresolved inconsistencies and should consider providing advice consistent with section 3.2.2. 3.4.1 Determination Process for Future Sales of a New or Existing Product When determining NGE scales for future sales of a new or existing product, the actuary should take into account the following:
b. how NGE scales are structured to cover costs under the product design, as well as the potential impact on profitability if policyholder behavior varies from expectations;
c. that NGE scales are determined with the expectation that they will not be revised unless the anticipated experience factors change;
d. whether the NGE scales are consistent with the language of the policy;
e. projected profitability;
f. constraints on the ability to revise NGE scales to reflect future changes in anticipated experience factors (for example, guaranteed elements, contractual limitations, development and implementation cost, systems constraints); and
g. how elements of the determination policy affect the ability to revise NGE scales after issue.
The actuary should document the NGE determination process and results, including how items (a)–(g) and any prior analysis were taken into account.
The actuary should consider conducting sensitivity analyses to evaluate the impact of future deviations from the anticipated experience. The actuary should consider recommending how often such anticipated experience factors be reviewed.
3.4.2 Determination Process for In-Force Policies
The determination process for inforce policies consists of reviewing prior determinations, analyzing emerging experience relative to anticipated experience factors, considering whether to recommend a revision in the NGE scales, and, if a revision is to be made, determining the revised NGE scales.3.4.2.1 Reviewing Prior Determinations
The actuary should review prior determinations, including the original determination in effect at the time of policy issue. This may include information such as previous anticipated experience factors, profitability metrics, pattern of profits, NGE scales, and other assumptions.If the information related to prior determinations is not available or incomplete, the actuary should reconstruct prior determinations to the extent practicable and necessary for the determination process, and document the methods and assumptions used. If reconstructing the prior determinations is not practicable due to incomplete information or other limitations, the actuary should select and document a reasonable approach to gain an understanding of the prior determination.
3.4.2.2 Analyzing Experience
When analyzing how experience is emerging relative to anticipated experience factors, the actuary should take into account the following, if applicable:b. the credibility of experience;
c. the size of the relevant group of policies or policy classes, such as number of policies, premium volume, insurance amount, or account value;
d. the materiality of any change in the experience relative to the existing anticipated experience factors;
e. whether existing anticipated experience factors, including any projected trends, are supported by actual experience; and
f. whether profitability was particularly sensitive to changes in any anticipated experience factors, as disclosed in previous actuarial reports.
The actuary should document how (a)–(f) above and any additional relevant items were taken into account.
3.4.2.3 Considering Whether to Recommend a Revision to NGE Scales
When considering whether to recommend a revision to NGE scales, the actuary should take into account the following, if applicable:b. the anticipated experience factors that are used for revising NGE scales under the terms of the policy and applicable law;
c. deviations in emerging experience from what was assumed in the prior determination of NGE scales;
d. how any recommended revision could affect reserves, capital, reinsurance, and taxation;
e. the appropriateness of the profitability metrics and objectives. For example, an internal rate of return metric may have been used at policy issue, but a different metric may be appropriate when applied to in-force policies;
f. the change in the prospective profitability due to the change in anticipated experience factors and any additional factors for which a change may be reflected in the determination of NGEs under section 3.2(b), the terms of the policy, and applicable law;
g. the complexity of the analysis needed. For example, when changing credited interest rates, the actuary may limit the analysis to changes in investment income, while other changes, such as COIs, may require more complex analysis and modeling, which could reflect multiple anticipated experience factors and require consideration of other NGEs;
h. whether other analyses, such as sensitivity analysis, are needed;
i. costs, practical implementation difficulties, and materiality of making revisions to the NGE scale; and
j. potential impacts on the policyholder (for example, policyholder behavior or policyholder equity) or the insurer of revising or not revising NGE scales to reflect changes in anticipated experience factors.
3.4.2.4 Determining the Revised NGE Scales
When determining revised NGE scales, the actuary should take into account the provisions of section 3.4.1(a)-(g) and shouldb. base the revision of the NGE scales on changes in the anticipated experience factors identified in (a) above; and
c. determine new NGE scales using a method that is consistent with sections 3.2(a) and 3.2(b). For example, it might be appropriate to use a method to determine the revised NGE scales such that the prospective profitability from the time of revision, taking into account the prospective pattern of profits by duration, is not materially greater than that using the original NGE scales and original anticipated experience factors, holding all other assumptions constant between the projections.
The actuary should perform an appropriate level of analysis based on the anticipated experience factors and the type of revision being considered. The actuary may use relevant prior analysis in making the determination. For example, as discussed in section 3.4.2.3(g), changing COIs may require more complex analysis and modeling than routine changes in credited interest rates, which may rely on prior interest rate spread analysis. The actuary should ensure that the method and results of any analysis used to support the determination of the revised NGE scales, including how the provisions of section 3.4.1(a)-(g) and any additional relevant items as noted above were taken into account, are documented or addressed in prior documentation.
3.4.2.5 Additional Considerations
When recommending or determining a revision to NGE scales, the actuary may consider using additional anticipated experience factors that were not part of the previous determination of NGE scales, such as a new tax-related expense.If circumstances arise under which the insurer allocates past losses or gains by making adjustments to the NGE scales, for example, due to regulatory requirements, the actuary should document the circumstances and should consider recommending a methodology to separately account for such adjustments when considering future determinations of the NGE scales.
