Many aspects of policyholder behavior must be considered when modeling. One key assumption on flexible premium UL products is premium persistency. Anticipated and actual payment patterns for flexible premium products can have a dramatic impact in the overall profitability and risk insurance companies are taking. As actuaries face the outlook of a principle-based approach for determining reserves and capital and the assumptions required under the approach, and as companies develop new product designs, many are interested in assumptions and experience of other companies.

The purpose of this project is to identify the assumptions used and experience companies have measured by plan for their flexible premium UL products. The knowledge from this research will assist actuaries in establishing, validating, and evaluating the sensitivity of the assumptions in their product pricing, valuation and projection models.

The objective of this project is two-fold: (i) to perform a survey of assumptions used by life insurers on their flexible premium UL products; and (ii) within the assumption gathering process, investigate company interest in submitting data to the SOA for an intercompany study of premium persistency experience.

The issues to be investigated include but are not limited to:

• Identification of flexible premium UL products available at the company
• Level of premium amounts assumed (target, minimum, multiples of target, specific pay schedules, and others)
• Premium persistency assumptions for flexible premium UL products
• Methodology for developing the assumptions
• Sensitivity tests performed on persistency assumptions, impact of those sensitivities, and reasons for testing those particular sensitivities
• Consistency/variations in premium persistency assumptions between pricing, cash flow testing, illustration testing, etc.; and
• Availability of data and willingness to participate in an actual intercompany premium persistency study

The scope of research should include fixed UL products, variable UL products and fixed indexed UL products. The survey should also address assumptions used for various modeling purposes (e.g. Product pricing, cash flow testing, etc.). Researchers will need to define appropriate breakdowns for the survey, including product (e.g. IUL with or without secondary guarantees, etc.) and modeling objective (e.g. Pricing vs. cash flow testing) to ensure comparability and to assist in defining specific data requirements for the study. It is expected that follow-up telephone and/or in-person interviews with some of the survey respondents may be required to gather additional information and insight into some of the issues.

The Researcher(s) will compile and analyze the survey responses and summarize the results of the survey 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 survey questionnaire and/or interview questions, and the final report of survey 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 keep costs at a minimum, the intent is for the SOA to administer the survey utilizing SOA online survey software and other resources.

If the results of this project indicate that an intercompany study of premium persistency experience would be of significant value to SOA members, the SOA might sponsor a subsequent project to perform such a study. However, such a study is outside the scope of this project.

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, and possible limitations of the analysis, specifically what the Researcher(s) will do with inconclusive or otherwise incomplete survey results.

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 Product Development Section is 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 e-mail to:

Ronora Stryker
SOA Research Actuary
f: 847.273.8514
e-mail: rstryker@soa.org.

If you intend to submit a proposal, please send written notification by
February 18, 2011 to:

Jan Schuh
SOA Research Administrator
f: 847.273.8556
e-mail: jschuh@soa.org

Please e-mail a copy of the proposal to:

Jan Schuh at jschuh@soa.org

Proposals must be received no later than February 25, 2011. It is anticipated that all researchers who have submitted proposals will be informed of the status of their proposal no later than March 31, 2011.

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).