Froogle | ASOP 3 | Section 3.6

When developing the actuarial balance sheet or the cohort pricing analysis, the actuary should develop the following actuarial present value items.

The actuary should estimate the actuarial present value of future periodic fees by projecting the fees payable by the surviving contractual residents or members of the appropriate closed-group population in each level of care in each future year, and discounted to the valuation date. In the estimate of future fees, the actuary should reflect current rates adjusted for projected future fee increases.

The actuary should estimate the actuarial present value of future additional fees (such as guest meals and additional meals) and third-party payments. When projecting future payments, the actuary should project the additional revenue payable by, or on behalf of, the surviving contractual residents or members attributable to the appropriate closed-group population in each level of care in each future year. In the estimate of these future payments, the actuary should reflect current experience adjusted for projected future increases.

The actuary should estimate the actuarial present value of physical property for assets currently in service as the actuarial present value of the projected remaining annual capital expense charges associated with assets in service as of the valuation date.

The actuary should estimate the annual capital expense charge for the use of an asset for each year using its useful lifetime. The projected annual capital expense charge consists of the imputed interest charge for the use of the asset plus the change in asset value from one year to the next. In calculating the capital expense charges, the actuary should use a rate consistent with the cost of capital at the time the asset was originally put into service or the cost of capital in the current economic environment.

The actuary should estimate the actuarial present value of the future use of physical property by taking the projected annual capital expense charges for both the current and replacement fixed assets allocated to the surviving contractual residents of the appropriate closed-group population in each future year and discounting the result back to the valuation date. The actuary should consider developing the actuarial present value estimates for each level of care.

The actuary should use a methodology to estimate the annual capital expense charges that is consistent with the methodology used to estimate the annual capital expense charges of physical property for assets currently in service (see section 3.6.3).

The actuary should estimate the actuarial present value of future operating expenses by taking the operating expenses allocated to the contractual residents or members of the appropriate closed-group population in each future year and discounting the result back to the valuation date. The actuary should exclude from future operating expenses

(a) future capital expenditures, which are discussed in section 3.6.4; and

(b) the future long-term debt interest and principal payments, which are discussed in section 3.6.7.

When estimating future operating expenses, the actuary should reflect future cost trends and reflect underlying expense consumption patterns in the allocation. The actuary should allocate expenses across the various levels of care and within each level of care on an appropriate basis such as per person, per unit, or per square foot.

The actuary should estimate the actuarial present value of future refunds due to refund guarantees by estimating the amount of refund due to each terminating contractual resident or member of the appropriate closed-group population in each future year and discounting the amounts back to the valuation date. The refund calculation is for the contractual amount of the advance fee refund. The actuary should calculate the estimate of the advance fee refund based on the contractual liability for each future year on the terms of the residency agreement or membership agreement assumed to be applicable to that contractual resident or member and the organization’s actual practice, if any, with regard to payment of refunds.

The actuary should estimate the present value of long-term debt as the discounted value of the projected remaining principal and interest payments as of the valuation date. The present value of long-term debt may be different than the amount on the accounting balance sheet depending on the relationship between the discount rate and the actual or expected interest rate on the debt.