Insurance companies continually need to quantify and qualify the risks that are being taken by writing the business they issue. Each company has its own means of understanding the risks inherent in its products. One way of measuring that inherent risk is through the use of MCEV. MCEV has become a hot topic of discussion, but many do not understand the implementation issues and the impact that this particular measure has in risk assessment for various insurance products.

The purpose of this project is to explain the concept and construction of MCEV, as well as its usefulness as a profit/risk measure relative to other profit/risk measures currently used by insurance companies for various life insurance and annuity products.

The knowledge from this research will assist actuaries, corporate leaders, risk management professionals and others in understanding, implementing and comparing MCEV to other risk assessment tools utilized by insurance companies.

The objective of this project is to produce a white paper that explains at a minimum:

• How MCEV works;
• How MCEV is calculated;
• How MCEV compares to commonly used profit measures (IRR, profit margin, etc); and
• How MCEV compares to other risk assessment tools.

The issues investigated will include but not be limited to:

• Identifying the variables required to perform an MCEV calculation;
• Identifying the differences in the variables from one company to another for the same product, if any, and the associated reasons for the differences;
• Calculating MCEV for various life insurance and annuity products;
• Analyzing MCEV relative to other profit measures often used for the various life insurance and annuity products;
• Identifying the pros and cons of using MCEV for various life insurance and annuity products and compare and contrast that with the other profit measures; and
• Indentifying the risks associated with using MCEV especially with regard to input variables, modeling, implementation, education on the profit measure, and any other perceived risks when using this measure giving consideration to practice notes recently released.

The Researcher(s) will compile and analyze the data and summarize the results of the analysis in a report made available to the SOA membership. Within the report, the Researcher(s) is encouraged to offer additional solutions to the problems and issues identified.

It is expected that the Researcher(s) will work closely with a Project Oversight Group (POG) in finalizing the information to be collected, the overall content, and the final report of results. The Researcher(s) will also provide the POG with periodic progress reports. Members of this group will be available to provide feedback and guidance to the Researcher(s) as needed.

To facilitate the evaluation of proposals, the following information should also 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, emphasizing issues that require special consideration. Details should be given regarding the techniques to be used, collateral material to be consulted, life insurance and annuity products to be studied including listing the product types to be examined split between life insurance and annuity categories, and possible limitations of the analysis.
3. Cost estimates for the research. We expect to reach agreement on a fixed cost for this project with the Researcher(s). While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
4. A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions.
5. Ideas regarding the form and distribution of the final report, both for immediate release and for permanent reference (e.g., submission to the North American Actuarial Journal or other SOA publication).
6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

The SOA's sponsoring committees are responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the sponsoring committees will make the final decision. The SOA's Research Actuary will provide staff actuarial support.

Any questions regarding this RFP should be directed by fax, or email to: Ronora Stryker, SOA Research Actuary (f: 847.273.8514).

If you intend to submit a proposal, please send written notification by November 19, 2010 to:

Jan Schuh
SOA Research Administrator
f: 847.273.8556
email: jschuh@soa.org

Please email a copy of the proposal to: Jan Schuh.

Proposals must be received no later than December 3, 2010. It is anticipated that all researchers who have submitted proposals will be informed of the status of their proposal no later than December 31, 2010.

Note: Proposals are considered confidential and proprietary.

The Society of Actuaries 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 to proceed. The Society of Actuaries also reserves the right to redirect the project as is deemed advisable.

The Society of Actuaries intends to copyright and publish the results of this research. The research will be considered work-for-hire and all rights thereto belong to the Society of Actuaries. However, appropriate credit will be given to the Researcher(s).