Z-Factor Analysis Under A Principles–Based Approach For U.S. Life Insurance Products

Research Projects – Life Insurance


The Society of Actuaries' Committee on Life Insurance Research and Financial Reporting Section are pleased to make available the following report examining the Z–Factor methodology being considered by the American Academy of Actuaries' Life Reserves Work Group (LRWG) for measuring the margins for uncertainty utilized in estimating reserves under a principles–based approach. Performed by John Roeger and Yiping Yang of Milliman, the research addresses the following questions:

  1. Is the Z–Factor methodology mathematically sound?
  2. How sensitive is the Z–Factor to different levels of capital?
  3. Does the Z–Factor provide consistent results across all general account life insurance product lines?
  4. Is the Z–Factor applicable to separate account products?
  5. Under what circumstances would the Z–Factor fail, if any?
  6. Are there alternative measures that should be considered?

The results of this research will be used by the LRWG in finalizing its recommendations on principles–based reserving.

The Committee on Life Insurance Research and the Financial Reporting Section Council would like to thank the following individuals that served on the Project Oversight Group:

  • Jerry Enoch
  • Jan Schuh
  • Tomasz Serbinowski
  • Henry Siegel
  • Steve Strommen
  • Ronora Stryker
  • Erin Wright

If you have any questions or comments regarding this report, please direct them to Ronora Stryker, SOA Research Actuary.