The cost of variable annuity living benefit guarantees is highly dependent on policyholder utilization assumptions. Utilization is generally assumed to vary with the "in-the-moneyness" of the benefits. However, there is limited historical experience with which to set utilization assumptions. In particular, until recently, there has been limited experience for periods when benefits are significantly in-the-money. The period 2007-2009 saw declines in equity values that significantly increased in-the-moneyness of these benefits, and the experience of this period provides a significant opportunity to understand policyholder behavior.

The purpose of this project is to design an empirical study that would provide historical information on VAGLB policyholder behavior, including correlation to market factors. This information will help actuaries in developing assumptions that can be used to analyze the cost of VAGLB guarantees. As discussed further below, this project is Phase 1 of what is envisioned to be a two-phase project.

The Society of Actuaries (SOA) is considering sponsoring an intercompany experience study to analyze policyholder utilization of the most common VAGLBs–GMIB, GMWB and GMAB. The experience study should capture the sensitivity of policyholder behavior to market factors including the in-the-moneyness of the benefit, as well as the sensitivity to key design variables of each VAGLB type. The output of the study should be of a form to be useful to actuaries in developing utilization assumptions for pricing, valuation and risk management purposes.

The SOA is developing this experience study in two phases. Phase 1 includes the design and development of specifications for the study, while Phase 2 will include execution of the study using the specifications developed in Phase 1.

The SOA is seeking a researcher(s) knowledgable in this subject matter to perform the study design phase of the project (Phase 1), which includes the following:

• Developing the data request
• Specifying how data are to be validated
• Specifying the analyses to be performed and the relationships to be captured
• Designing the reports

It is expected that the researcher(s) will work closely with a Project Oversight Group (POG) in finalizing the study design. 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.

This RFP addresses Phase 1 of the study only. Should a separate RFP be issued for Phase 2 of this project, the final project phase, as outlined below, individuals bidding on Phase 2 will have access to Phase 1 deliverables in preparing their proposals. However, in considering the proposals submitted for Phase 2, preference will be given to the proposal received from the winning researcher(s) for Phase 1.

Phase 2 of the project, performing the study as designed in Phase 1, includes the following:

• Working with the SOA in distributing the Call-for-Data to potential contributing companies
• Collecting and organizing the data
• Validating the data
• Aggregating and analyzing the data
• Summarizing the results in a report

If different researchers are selected for the two phases, the researcher(s) for Phase 1 is expected to provide guidance, if needed, to the Phase 2 researcher(s) and /or Project Oversight Group on the research performed and resulting deliverables from Phase 1.

To facilitate the evaluation of proposals, the following information should 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 in Phase 1, emphasizing issues that require special consideration. Details should be given regarding the manner in which appropriate published material will be identified, search techniques to be used, collateral material to be consulted, and possible limitations of the review and analysis. Time periods proposed to be examined should be noted in this outline.

 

3. Cost estimates for the Phase 1 project, including computer time, salaries, report preparation, research costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included.

 

Any guarantees as to total (Phase 1) cost should be given and will be considered in the evaluation of the proposal. 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 Phase 1research, identifying key dates or time frames for research completion and report submission. The research should be completed in a time frame covering no longer than six months.

 

5. Ideas regarding the form and distribution of the final report, both for immediate release and for permanent reference (e.g., submission to North American Actuarial Journal or other refereed publication, SOA Monograph Series, CD ROM).

 

6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

The SOA's Financial Reporting Section Council (FRSC) and its research team are responsible for the selection of the proposal to be funded. A Project Oversight Group (POG) will be appointed by the FRSC to oversee the project. Input from the POG and other knowledgeable individuals also may be sought, but the FRSC 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 (Fax: 847.273.8514; e-mail: rstryker@soa.org).

If you intend to submit a proposal, please send written notification by December 3, 2010 to Jan Schuh by e-mail (jschuh@soa.org) or fax: 847.273.8556.

Please e–mail a copy of the proposal to: Jan Schuh.

Proposals must be received no later than December 10, 2010. It is anticipated that all authors 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).