Description: The purpose of this report is to develop information that may be useful to the Pennsylvania legislature in its efforts to regulate the funding of pre-need contracts. What we have done is to develop a theoretical basis for regulation and then to suggest some practical approaches to initial implementation.

Description: In computing actuarial measurements, such as the moments of present value functions for insurance and annuities, the stochastic nature of the interest rate is commonly ignored. This paper treats the interest rate as a normal random variable and presents general formulas for the mean and variance of the present value function for insurance and annuities. An example demonstrating these formulas is presented. It is found that taking the force of interest to be fixed at a mean value results in slightly underestimating the actuarial present value along with the variance for both insurance and annuities.

Description: This paper explores the use of linear programming as a tool to guide policyholders in getting the most value out of their combined insurance and investment programs. Concentrating on flexible premium universal life within the tax environment of the United States, several linear programming models are developed that can be used at the point of sale, to select the most cost effective policy from those available in the marketplace, and after issue to maximize the present value of future cash flows on the policy of an insured who is in ill-health. From Actuarial Research Clearing House 1991, VOL. 3.

Description: These notes are a follow-up to the paper 'Introduction to the Dynamics of Pension Funding' by the same authors and published in Transactions of Society of Actuaries 1976, Vol. 28. The purpose of that paper was to provide an introduction to mathematical principles applicable to pension funding under dynamic conditions of population growth, inflation, and automatic adjustment of benefits. The first note discusses a general contribution formula and a number of special cases and modifications. The second note concerns aggregate cost funding when the actuary uses assumptions about cost factors which differ consistently from cost experience. The final note concerns the variation of the annuity unit under a variable annuity program patterned after the plan employed by the College Retirement Equities Fund [CREF]. From Actuarial Research Clearing House 1981, Vol. 1.

Description: This report looks at closed form models or 'exact solutions' in which calculus produces 'simple' formulae. The conclusion is that for Gaussian interest rate models we can solve the problem of an American option provided the option holder behaviour can be described by a force of option exercise which is linear or quadratic in the state variables.

Description: This paper analyzes the accuracy of the principal models used by U.S. insurance regulators to predict insolvencies in the property-liability insurance industry and compares these models with a relatively new solvency testing approach- cash flow simulation. Specifically, the authors compare the risk-based capital [RBC] system introduced by the National Association of Insurance Commissioners [NAIC] in 1994, the 'FAST' [audit ratio] system used by the NAIC, and a cash flow simulation model developed by the authors. Both the RBC and FAST systems are static, ratio based approaches to solvency testing, whereas the cash flow simulation model implements dynamic financial analysis. Logistic regression analysis is used to test the models for a large sample of solvent and insolvent property-liability insurers, using data from the years 1990-1992 to predict insolvencies over three-year prediction horizons. The authors find that the FAST system dominates RBC as a static method for predicting insurer insolvencies. Further, they find the cash flow simulation variables add significant explanatory power to the regressions and lead to more accurate solvency prediction than the ratio-based models taken alone.

Description: Brief comment from the Editor about the 17th Actuarial Research Conference in 1982.

Description: The purpose of this paper is to introduce some actuarial applications of Tchebyshef's Inequality.

Description: This paper introduces the Bond Manager's Method for ALM which allows the impact of a change in interest rate levels on the present value of a stream of cash flows to be directly determined from the coupon rates and prices on benchmark bonds without the intermediate step of determining spot rates. From Actuarial Research Clearing House 1993, VOL. 3.

Description: The two basic considerations in a pension plan valuation are the choice of actuarial cost methods and actuarial assumptions. This paper deals with the assumptions. The concern in this regard is what actuaries are doing and why. There are explicit criteria why particular assumptions are chosen, and these have often been discussed in the pension literature. However, there also are implicit criteria, which, while seldom discussed in the literature, can dominate the valuation. The goal of this paper is to quantify some of these criteria, and thereby provide a basis for further discussion and research.