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Request For Proposal Simplified Methodologies in VM 20

Background

Smaller companies may consider electing the Small Company exemption due to implementation and operational costs as well as resources needed to report on a VM-20 basis. A result of electing the exemption might be holding higher reserves than what would have been determined under VM-20 had the insurer not elected the exemption. 

This study investigates simplifications, approximations, and modeling efficiency techniques allowed under VM-20 for determining reserves. The goal of the project is to develop less intensive methodologies that are allowed under VM-20 and satisfies the specified demonstration requirement.

VM-20 Section 2G under Minimum Reserves states:

A company may use simplifications, approximations and modeling efficiency techniques to calculate the net premium reserve, the deterministic reserve and/or the stochastic reserve required by this section if the company can demonstrate that the use of such techniques does not understate the reserve by a material amount and the expected value of the reserve calculated using simplifications, approximations and modeling efficiency techniques is not less than the expected value of the reserve calculated that does not use them.

In such case, information shall be available to ensure that a deterministic reserve amount calculated as the total of the seriatim (policy-by-policy, with respect to liability cash flows) reserve calculations produces a reserve not materially different than the deterministic reserve amount calculated using groupings of policies. This does not preclude use of model segmentation for purposes of determining discount rates. VM-31 Section 3.E.3. provides details.

This research will provide considerations for insurers in evaluating the impact of VM-20 on their operations and in implementing the new regulatory requirements.


Research Objective

The Smaller Insurance Company Section, Modeling Section and Committee on Life Insurance Research are seeking a researcher(s) to explore existing and new methodologies, approximations, modeling efficiencies to develop simplified approaches for calculating reserves for certain products that meet VM-20 requirements. The researcher(s) will then compare and contrast the approaches and determined reserves under the approaches to the reserves under VM-20 had an insurer not elected to use the simplified approach. The researcher will summarize results into a report to be published on the SOA's website.

The project description and expected deliverable(s) have been intentionally written to be brief to give researcher(s) sufficient latitude in the development of the proposals. Analysis for term and UL without secondary guarantees products is of the most interest. However, other life insurance products, including combination, indexed, and/or variable products will be considered. 

A short duration project is expected. The researcher(s) should complete the project within 6 months from the start date.


Proposal

A researcher(s) may submit a proposal to perform analysis for one or more product types. 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 (e.g. literature search, model, etc.), 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.
  3. A description of the expected deliverables and any supporting data, tools or other resources.
  4. Cost estimates for the research, including computer time, salaries, report preparation, material 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 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.
  5. A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions. The Smaller Insurance Company, Modeling Section and Committee on Life Insurance Research are interested in completing this project in a timely manner. Suggestions in the proposal for ensuring timely delivery, such as fee adjustments, are encouraged.
  6. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.


Selection Process

The Smaller Insurance Company, Modeling Section and Committee on Life Insurance Research will appoint a Project Oversight Group (POG) to oversee the project. The POG is responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the POG will make the final decision. The SOA's Research Actuary will provide staff actuarial support.


Questions

Any questions regarding this RFP should be directed to Ronora Stryker, SOA Research Actuary (phone: +1-847-706-3614; email:  Ronora Stryker).    


Notification of Intent to Submit Proposal

If you intend to submit a proposal, please e-mail written notification by February 15, 2016 to Jan Schuh


Submission of Proposal

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

Proposals must be received no later than February 29, 2016 . It is anticipated that all proposers will be informed of the status of their proposal by the end of March 2016. 

Note: Proposals are considered confidential and proprietary.


Conditions

The Smaller Insurance Company, Modeling Section and Committee on Life Insurance Research reserve 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. The Smaller Insurance Company, Modeling Section and Committee on Life Insurance Research also reserves the right to redirect the project as is deemed advisable.

The Smaller Insurance Company, Modeling Section and Committee on Life Insurance Research plan to hold the copyright to the research and to publish the results with appropriate credit given to the researcher(s).

The Smaller Insurance Company, Modeling Section and Committee on Life Insurance Research may choose to seek public exposure or media attention for the research.  By submitting a proposal, you agree to cooperate with the Smaller Insurance Company, Modeling Section and Committee on Life Insurance Research in publicizing or promoting the research and responding to media requests.

The Smaller Insurance Company, Modeling Section and Committee on Life Insurance Research may also choose to market and promote the research to members, candidates and other interested parties.  You agree to perform promotional communication requested by the Smaller Insurance Company, Modeling Section and Committee on Life Insurance Research, which may include, but is not limited to, leading a webcast on the research, presenting the research at an SOA meeting, and/or writing an article on the research for an SOA newsletter.