The Application of Credibility Theory in the Canadian Life Insurance Industry

Background and Purpose

The application of credibility theory can involve the practice of setting future assumptions by assessing past experience and considering it with current expectations. The application of credibility theory is often required when actuaries determine and evaluate the appropriateness of assumptions such as mortality and lapse levels for a company’s block of business. To successfully apply the theory, an actuary needs a good understanding of available credibility methods, their uses and limitations. The purpose of this project is to create reference material to assist practicing life and annuity actuaries in understanding and applying credibility theory.

Research Objective

The Canadian Institute of Actuaries (CIA) and the Society of Actuaries (SOA) are seeking a researcher(s) to perform a study on the application of credibility theory in the Canadian life insurance industry. Employer sponsored products are excluded from this study.

The study is composed of two parts as outlined below.

  1. The objective for part one is to conduct a company survey of Canadian life and annuity companies on credibility theory practices. This survey should incorporate both credibility methods being used, the associated processes, and use of data. The following are examples of proposed topics that may be addressed:
    • How are life insurers and annuity companies applying credibility theory for mortality and lapse?
    • Are life insurers and annuity companies applying credibility theory to determine other assumptions?
    • What are the internal and external guidelines for when a life insurance or annuity company applies credibility theory?
    • What are the methods and data being used and how do they vary by use? For example, are the methods and data the same for both mortality and lapses?
    • What software is being used?
    • How does the application of credibility theory vary by product type?
    Note that the above list is not meant to be exhaustive but merely examples of proposed topics that may be researched.
  2. The objective for part two is to compare and contrast the approaches/methods that are being utilized using sample datasets for both mortality and lapse.

Research results will be summarized in a report suitable for publication.

Proposal

To facilitate the evaluation of proposals, the following information should be submitted:

  • 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.
  • 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.
  • A description of the expected deliverables and any supporting data, tools or other resources.
  • 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.
  • A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions. The Canadian Institute of Actuaries and the Society of Actuaries are interested in completing this project in a timely manner. Suggestions in the proposal for ensuring timely delivery, such as fee adjustments, are encouraged.
  • Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

Selection Process

The Canadian Institute of Actuaries and the Society of Actuaries will appoint a Project Oversight Group (POG) to oversee the project. The Canadian Institute of Actuaries and the Society of Actuaries are responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the Canadian Institute of Actuaries and the Society of Actuaries 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: 847-706-3614; e-mail: rstryker@soa.org

Notification of Intent to Submit Proposal

If you intend to submit a proposal, please e-mail written notification by September 29, 2017 to Jan Schuh at jschuh@soa.org.  

Submission of Proposal

Please e-mail a copy of the proposal to Jan Schuh, SOA Sr. Research Administrator, at jschuh@soa.org.

Proposals must be received no later than October 13, 2017. It is anticipated that all proposers will be informed of the status of their proposal by the end of November 2017.

Note: Proposals are considered confidential and proprietary. 

Conditions

The Canadian Institute of Actuaries and the Society of Actuaries 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 Canadian Institute of Actuaries and the Society of Actuaries also reserve the right to redirect the project as is deemed advisable.

The Canadian Institute of Actuaries and the Society of Actuaries plan to hold the copyright to the research and to publish the results with appropriate credit given to the researcher(s).

The Canadian Institute of Actuaries and the Society of Actuaries may choose to seek public exposure or media attention for the research. By submitting a proposal, you agree to cooperate with the Canadian Institute of Actuaries and the Society of Actuaries in publicizing or promoting the research and responding to media requests.

The Canadian Institute of Actuaries and the Society of Actuaries 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 Canadian Institute of Actuaries and the Society of Actuaries, which may include, but is not limited to, leading a webcast on the research, presenting the research at a CIA and/or SOA meeting, and/or writing an article on the research for a CIA and/or SOA newsletter.