This M Intelligence piece will explore the product mechanics and design considerations of Whole Life (WL) insurance. There are two general categories of WL...
Feb 2012 Fiduciary Considerations For Insured Retirement Income[1]fredreish
This document discusses fiduciary considerations for retirement plans offering guaranteed minimum withdrawal benefits (GMWBs). It provides an overview of typical GMWB features, including how they guarantee minimum withdrawals for life from retirement accounts. It also outlines the fiduciary process for evaluating and selecting GMWBs, focusing on three key areas: assessing product features, evaluating portability, and ensuring the financial viability of the insurance company providing the benefits. Fiduciaries must engage in a prudent process to determine whether offering a GMWB is appropriate for their plan and to select the best product and carrier based on factors like costs, benefits, and the long-term ability of the insurer to pay guaranteed amounts.
Advanced Markets Insight: Life Insurance Basics—Life Insurance Pricing and Po...M Financial Group
The pricing of life insurance policies is complex and dynamic. There are four factors that primarily drive pricing and policy performance: mortality, investment earnings, expenses and taxes, and persistency. The impact of the varying pricing factors on policy performance will vary in importance depending on the type of policy design. Each pricing factor is based on current experience, usually from the insurer itself but sometimes complemented by data from actuarial consulting firms, public sources, or reinsurers.
This document analyzes the implications of lengthened workers' compensation liability tails for self-insurers in three sentences:
Lengthened liability tails increase the financial risks and rewards of self-insurance by extending the period over which cash outflows are deferred. Longer tails also increase profit and loss volatility for self-insurers and affect how expenses are reported in financial statements. The document models costs of self-insurance under shorter and longer tail scenarios to explore these implications.
This document provides information about Unit Linked Insurance Plans (ULIPs). It discusses that ULIPs focus on both risk coverage and investments. A portion of ULIP premiums goes towards life insurance coverage, while the remaining amount is invested in funds consisting of stocks and bonds. ULIPs offer flexibility to switch funds and alter life coverage amounts. Charges are deducted from ULIP premiums and ongoing fund values. Overall, ULIPs provide both insurance protection and investment opportunities for long-term goals.
Unit Linked Insurance Policies (ULIPs) are life insurance policies that provide both risk coverage and investment. Most ULIPs offer a range of investment funds to suit different risk profiles and time horizons. Returns are not guaranteed as the investment risk is borne by the policyholder. Charges include premium allocation charges, mortality charges, fund management fees, and surrender charges. The document provides answers to frequently asked questions about ULIPs, such as what is a unit fund, benefits payable, consequences of discontinuing premiums, and fund performance reporting.
This document outlines 25 reasons to own life insurance through a qualified retirement plan. Some key benefits include using pre-tax dollars to pay premiums, avoiding taxes on death benefits, and using life insurance as an investment within a balanced retirement portfolio. Life insurance can also be used to fund buy-sell agreements for business owners or provide benefits to spouses and heirs in the event of premature death.
Indexed universal life insurance (IUL) policies allow policyholders to earn returns linked to market indexes, such as the S&P 500, while providing a guaranteed minimum return. IUL policies credit interest to the cash value based on the greater of the guaranteed minimum rate or a formula related to market index performance. IUL policies offer flexibility to modify premiums or death benefits over time in response to changing needs. IUL policies can be used for family protection, business planning, accumulation needs, and charitable gifts.
1. Permanent life insurance can be a good investment if commissions are reduced by 85% and the policy is obtained from a company with low mortality charges. This can improve rates of return by over 200 basis points compared to a standard policy.
2. Reducing commissions, which typically exceed 100% of the first year premium, allows more of the premium to build cash value immediately rather than pay commissions. Low commissions improve long term returns significantly.
3. Obtaining a policy from a company with the best mortality results based on industry studies can further improve returns by 90-140 basis points depending on age. Combining low commissions and low mortality charges offers the best returns.
Feb 2012 Fiduciary Considerations For Insured Retirement Income[1]fredreish
This document discusses fiduciary considerations for retirement plans offering guaranteed minimum withdrawal benefits (GMWBs). It provides an overview of typical GMWB features, including how they guarantee minimum withdrawals for life from retirement accounts. It also outlines the fiduciary process for evaluating and selecting GMWBs, focusing on three key areas: assessing product features, evaluating portability, and ensuring the financial viability of the insurance company providing the benefits. Fiduciaries must engage in a prudent process to determine whether offering a GMWB is appropriate for their plan and to select the best product and carrier based on factors like costs, benefits, and the long-term ability of the insurer to pay guaranteed amounts.
Advanced Markets Insight: Life Insurance Basics—Life Insurance Pricing and Po...M Financial Group
The pricing of life insurance policies is complex and dynamic. There are four factors that primarily drive pricing and policy performance: mortality, investment earnings, expenses and taxes, and persistency. The impact of the varying pricing factors on policy performance will vary in importance depending on the type of policy design. Each pricing factor is based on current experience, usually from the insurer itself but sometimes complemented by data from actuarial consulting firms, public sources, or reinsurers.
This document analyzes the implications of lengthened workers' compensation liability tails for self-insurers in three sentences:
Lengthened liability tails increase the financial risks and rewards of self-insurance by extending the period over which cash outflows are deferred. Longer tails also increase profit and loss volatility for self-insurers and affect how expenses are reported in financial statements. The document models costs of self-insurance under shorter and longer tail scenarios to explore these implications.
This document provides information about Unit Linked Insurance Plans (ULIPs). It discusses that ULIPs focus on both risk coverage and investments. A portion of ULIP premiums goes towards life insurance coverage, while the remaining amount is invested in funds consisting of stocks and bonds. ULIPs offer flexibility to switch funds and alter life coverage amounts. Charges are deducted from ULIP premiums and ongoing fund values. Overall, ULIPs provide both insurance protection and investment opportunities for long-term goals.
Unit Linked Insurance Policies (ULIPs) are life insurance policies that provide both risk coverage and investment. Most ULIPs offer a range of investment funds to suit different risk profiles and time horizons. Returns are not guaranteed as the investment risk is borne by the policyholder. Charges include premium allocation charges, mortality charges, fund management fees, and surrender charges. The document provides answers to frequently asked questions about ULIPs, such as what is a unit fund, benefits payable, consequences of discontinuing premiums, and fund performance reporting.
This document outlines 25 reasons to own life insurance through a qualified retirement plan. Some key benefits include using pre-tax dollars to pay premiums, avoiding taxes on death benefits, and using life insurance as an investment within a balanced retirement portfolio. Life insurance can also be used to fund buy-sell agreements for business owners or provide benefits to spouses and heirs in the event of premature death.
Indexed universal life insurance (IUL) policies allow policyholders to earn returns linked to market indexes, such as the S&P 500, while providing a guaranteed minimum return. IUL policies credit interest to the cash value based on the greater of the guaranteed minimum rate or a formula related to market index performance. IUL policies offer flexibility to modify premiums or death benefits over time in response to changing needs. IUL policies can be used for family protection, business planning, accumulation needs, and charitable gifts.
1. Permanent life insurance can be a good investment if commissions are reduced by 85% and the policy is obtained from a company with low mortality charges. This can improve rates of return by over 200 basis points compared to a standard policy.
2. Reducing commissions, which typically exceed 100% of the first year premium, allows more of the premium to build cash value immediately rather than pay commissions. Low commissions improve long term returns significantly.
3. Obtaining a policy from a company with the best mortality results based on industry studies can further improve returns by 90-140 basis points depending on age. Combining low commissions and low mortality charges offers the best returns.
Chapter 4 focuses on describing how to estimate and calculate Weighted Average Cost of Capital, answering the following questions:
How is the WACC calculated?
What is the Cost of Debt, Cost of Equity and Beta?
What is the Market Risk Premium and Country Risk Premium?
What is the periodicity of WACC calculation?
This document provides an overview of indexed universal life (IUL) insurance. It explains that IUL is a type of permanent life insurance that offers the potential for greater interest than traditional universal life due to interest being credited based on the upward movement of a stock market index, up to a cap rate. It also guarantees a minimum 2% interest rate. The document discusses when IUL may be a good choice, the interest crediting options available, and how policyholders can decide factors like coverage amount and premium payments.
The document discusses the benefits of establishing a group captive insurance program. It notes that previously the industry faced high pricing from insurers who did not recognize their focus on safety. By sharing loss information and forming a group captive, members saw premium rate reductions, more investment in safety programs, lower losses over time, and underwriting profits returned to the group. This led to expanded coverage options and a high member retention rate, providing a long-term, market-driven insurance solution for the industry.
This document discusses the differences between fully insured and self-funded health insurance options for employers. It introduces Premium Analysis, Inc., a company that provides risk analysis tools to help employers choose between funding options. Monte Carlo simulation software can analyze different scenarios and predict that self-funding has an 84.5% probability of equaling or improving costs compared to fully insured plans, by quantifying risks. The company's fee structure and compensation model are also outlined.
Premium financing allows an irrevocable life insurance trust (ILIT) to take out loans to pay life insurance premiums on the insured's life. This reduces gift tax costs compared to paying premiums outright. The life insurance policy serves as collateral, and additional assets may also be pledged. At the insured's death, the loan is repaid from death benefits. Exit strategies like GRATs and IDITs can provide funds to repay the loan and maintain the desired death benefit amount. Premium financing provides estate tax liquidity but involves risks like policy lapse if not properly planned and executed.
Premium Financing as Tool for Life Insurance FundingJohn Oliver
Premium financing can be an effective solution for clients who do not want to liquidate assets to pay life insurance premiums. Interest paid on loans to pay premiums is usually not tax deductible as it is considered personal interest. Some exceptions exist, such as allowing deduction of up to $50,000 in interest on policies covering key persons. While the insurance and loan would be separate transactions, most premium financing programs involve borrowing from lenders related to the insurance carrier. Premium financing sources have expanded in recent years to include various banks and brokers. Eligibility for premium financing loans depends on meeting minimum requirements for loan size, net worth, and other factors like interest rates.
This document discusses how life insurance can help achieve retirement goals by providing tax advantages. It notes that life insurance builds cash value on a tax-deferred basis that can supplement retirement through tax-favored loans and withdrawals. The document provides an example of a couple using policy withdrawals in retirement to lower their taxes while funding special expenses. It highlights the benefits of leveraging a life insurance policy for retirement through its death benefit, tax-deferred growth, and potential access to cash values.
What is the difference between Whole Life and Indexed Universal Life for Reti...Michael Grigsby
I get asked a lot about how Whole Life insurance differs from Indexed Universal Life insurance, particularly when it comes to retirement planning. In this presentation, I note the similarities between these forms of permanent insurance, the differences, and why you might use one instead of the other.
The document provides information about RnR DataLex Pvt Ltd, including their registered and operations offices in Nagpur, Maharashtra, India. It then provides details about the National Association of Insurance Commissioners (NAIC), including their role in establishing standards, conducting peer review, and coordinating regulatory oversight of the U.S. insurance industry. Finally, it discusses various insurance concepts such as underwriting, policy issuance, cancellations, premiums, premium finance, renewals, endorsements, reinstatement, and waiver of subrogation.
NASPP Webcast Bankruptcy 101 for Compensation ProfessionalsEdward Hauder
This presentation provides an overview of what happens to typical compensation elements in a bankruptcy and walks through some of the basics of bankruptcy from a compensation professional's poitn of view.
This document provides an overview of a case study on SIC Life Insurance Company's Techiman Branch. It discusses key concepts like risk and insurance, and outlines the types of insurance available in Ghana, with a focus on life insurance. The document poses research questions on the measures insurance companies use to influence life insurance demand, the affordability of premiums, and the sufficiency of insurance claims. It describes the objectives, limitations, and organization of the study into 5 chapters, covering topics like literature review, methodology, data analysis and findings.
Financial Guarantee 1[1] Music [Recovered] 5 01 09BPANGEL13
The document proposes a financial guarantee program for commercial and mixed-use real estate mortgages in Pennsylvania. It would provide down payment guarantees through surety bonds or policies, allowing borrowers to obtain full financing from lenders rather than pay a large down payment themselves. The program would benefit borrowers by avoiding draining their cash, lenders by enabling full loans with minimal added risk, insurers through premiums, and the state via increased real estate transactions stimulating the economy.
The document proposes a financial guarantee program for commercial and mixed-use real estate mortgages in Pennsylvania, whereby a borrower can obtain a mortgage for 100% of a property's value by purchasing a guarantee at around 3% of the purchase price to cover the down payment, allowing lenders to make loans with only their usual 60-80% risk while stimulating the real estate market.
Life insurance is used for many different purposes. During this webinar, we will discuss how Corporate America is currently using life insurance, such as Non-Qualified plans, keyman protection, and buy sell funding. As well as what to look for when purchasing life insurance, as not all products are created equally. We will provide life insurance education on Term, Whole Life, Universal Life, No Lapse Guarantee, Indexed Universal Life, and Variable Universal Life.
There are several options employers can take to reduce the risk associated with their defined benefit pension plans, ranging from liability-driven investing to a pension buy-in or buy-out. A pension buy-in allows employers to maintain their relationship with retirees while an insurer takes on the liability, and although buy-ins and buy-outs have additional costs, risk transfer can be presented as a shareholder-friendly activity that guarantees assets will match liabilities. While transferring pension risk to an insurer removes PBGC coverage, insurance companies are strictly regulated to protect policyholders and pension assets will be held separately from an insurer's general accounts. Employers are warned not to delay risk transfer efforts as capacity and favorable pricing could become issues over time
The document discusses various alternative risk financing strategies such as captive insurance, outlining key factors to consider when selecting a strategy, how captives are formed and structured, regulatory requirements for different captive types, and the multi-step process for establishing a captive insurance company.
This presentation is designed to provide the information needed to understand self-funding, assist you in explaining the solution to clients and then determine whether it is right for their company by comparing and contrasting it to a fully insured solution.
The document outlines strategies for captive insurance for high net-worth clients, including an overview of captive insurance structures and domiciles. It discusses pure captives, group captives, rent-a-captives and protected cell captives. Key considerations for captive insurance include tax strategies under IRS revenue rulings and using captives for estate planning.
LifeHealthPro - Heres why cash value life insurance is a superior productJose Ariel Taveras
The document discusses the advantages of cash value life insurance over term life insurance and other financial assets. It outlines three main categories of advantages for cash value life insurance: 1) Tax advantages, such as tax-free growth of cash value and tax-free death benefits; 2) Financial advantages, as life insurance is designed using actuarial models to provide guarantees and potential increases in death benefits; and 3) Legal advantages, like state legal protections and guarantees of insurers. The document promotes cash value life insurance as a superior financial product compared to alternatives due to these inherent advantages.
Indexed universal life insurance policies from Aviva combine the features of traditional universal life insurance with the potential to earn interest based on the performance of a stock market index. The policies provide life insurance protection, potential for cash value growth, and flexibility. Premium payments are initially placed in a basic interest strategy and then may be allocated to indexed strategies where interest is credited based on the movement of a stock market index, subject to participation rates and caps. This limits downside risk while allowing upside potential.
Chapter 4 focuses on describing how to estimate and calculate Weighted Average Cost of Capital, answering the following questions:
How is the WACC calculated?
What is the Cost of Debt, Cost of Equity and Beta?
What is the Market Risk Premium and Country Risk Premium?
What is the periodicity of WACC calculation?
This document provides an overview of indexed universal life (IUL) insurance. It explains that IUL is a type of permanent life insurance that offers the potential for greater interest than traditional universal life due to interest being credited based on the upward movement of a stock market index, up to a cap rate. It also guarantees a minimum 2% interest rate. The document discusses when IUL may be a good choice, the interest crediting options available, and how policyholders can decide factors like coverage amount and premium payments.
The document discusses the benefits of establishing a group captive insurance program. It notes that previously the industry faced high pricing from insurers who did not recognize their focus on safety. By sharing loss information and forming a group captive, members saw premium rate reductions, more investment in safety programs, lower losses over time, and underwriting profits returned to the group. This led to expanded coverage options and a high member retention rate, providing a long-term, market-driven insurance solution for the industry.
This document discusses the differences between fully insured and self-funded health insurance options for employers. It introduces Premium Analysis, Inc., a company that provides risk analysis tools to help employers choose between funding options. Monte Carlo simulation software can analyze different scenarios and predict that self-funding has an 84.5% probability of equaling or improving costs compared to fully insured plans, by quantifying risks. The company's fee structure and compensation model are also outlined.
Premium financing allows an irrevocable life insurance trust (ILIT) to take out loans to pay life insurance premiums on the insured's life. This reduces gift tax costs compared to paying premiums outright. The life insurance policy serves as collateral, and additional assets may also be pledged. At the insured's death, the loan is repaid from death benefits. Exit strategies like GRATs and IDITs can provide funds to repay the loan and maintain the desired death benefit amount. Premium financing provides estate tax liquidity but involves risks like policy lapse if not properly planned and executed.
Premium Financing as Tool for Life Insurance FundingJohn Oliver
Premium financing can be an effective solution for clients who do not want to liquidate assets to pay life insurance premiums. Interest paid on loans to pay premiums is usually not tax deductible as it is considered personal interest. Some exceptions exist, such as allowing deduction of up to $50,000 in interest on policies covering key persons. While the insurance and loan would be separate transactions, most premium financing programs involve borrowing from lenders related to the insurance carrier. Premium financing sources have expanded in recent years to include various banks and brokers. Eligibility for premium financing loans depends on meeting minimum requirements for loan size, net worth, and other factors like interest rates.
This document discusses how life insurance can help achieve retirement goals by providing tax advantages. It notes that life insurance builds cash value on a tax-deferred basis that can supplement retirement through tax-favored loans and withdrawals. The document provides an example of a couple using policy withdrawals in retirement to lower their taxes while funding special expenses. It highlights the benefits of leveraging a life insurance policy for retirement through its death benefit, tax-deferred growth, and potential access to cash values.
What is the difference between Whole Life and Indexed Universal Life for Reti...Michael Grigsby
I get asked a lot about how Whole Life insurance differs from Indexed Universal Life insurance, particularly when it comes to retirement planning. In this presentation, I note the similarities between these forms of permanent insurance, the differences, and why you might use one instead of the other.
The document provides information about RnR DataLex Pvt Ltd, including their registered and operations offices in Nagpur, Maharashtra, India. It then provides details about the National Association of Insurance Commissioners (NAIC), including their role in establishing standards, conducting peer review, and coordinating regulatory oversight of the U.S. insurance industry. Finally, it discusses various insurance concepts such as underwriting, policy issuance, cancellations, premiums, premium finance, renewals, endorsements, reinstatement, and waiver of subrogation.
NASPP Webcast Bankruptcy 101 for Compensation ProfessionalsEdward Hauder
This presentation provides an overview of what happens to typical compensation elements in a bankruptcy and walks through some of the basics of bankruptcy from a compensation professional's poitn of view.
This document provides an overview of a case study on SIC Life Insurance Company's Techiman Branch. It discusses key concepts like risk and insurance, and outlines the types of insurance available in Ghana, with a focus on life insurance. The document poses research questions on the measures insurance companies use to influence life insurance demand, the affordability of premiums, and the sufficiency of insurance claims. It describes the objectives, limitations, and organization of the study into 5 chapters, covering topics like literature review, methodology, data analysis and findings.
Financial Guarantee 1[1] Music [Recovered] 5 01 09BPANGEL13
The document proposes a financial guarantee program for commercial and mixed-use real estate mortgages in Pennsylvania. It would provide down payment guarantees through surety bonds or policies, allowing borrowers to obtain full financing from lenders rather than pay a large down payment themselves. The program would benefit borrowers by avoiding draining their cash, lenders by enabling full loans with minimal added risk, insurers through premiums, and the state via increased real estate transactions stimulating the economy.
The document proposes a financial guarantee program for commercial and mixed-use real estate mortgages in Pennsylvania, whereby a borrower can obtain a mortgage for 100% of a property's value by purchasing a guarantee at around 3% of the purchase price to cover the down payment, allowing lenders to make loans with only their usual 60-80% risk while stimulating the real estate market.
Life insurance is used for many different purposes. During this webinar, we will discuss how Corporate America is currently using life insurance, such as Non-Qualified plans, keyman protection, and buy sell funding. As well as what to look for when purchasing life insurance, as not all products are created equally. We will provide life insurance education on Term, Whole Life, Universal Life, No Lapse Guarantee, Indexed Universal Life, and Variable Universal Life.
There are several options employers can take to reduce the risk associated with their defined benefit pension plans, ranging from liability-driven investing to a pension buy-in or buy-out. A pension buy-in allows employers to maintain their relationship with retirees while an insurer takes on the liability, and although buy-ins and buy-outs have additional costs, risk transfer can be presented as a shareholder-friendly activity that guarantees assets will match liabilities. While transferring pension risk to an insurer removes PBGC coverage, insurance companies are strictly regulated to protect policyholders and pension assets will be held separately from an insurer's general accounts. Employers are warned not to delay risk transfer efforts as capacity and favorable pricing could become issues over time
The document discusses various alternative risk financing strategies such as captive insurance, outlining key factors to consider when selecting a strategy, how captives are formed and structured, regulatory requirements for different captive types, and the multi-step process for establishing a captive insurance company.
This presentation is designed to provide the information needed to understand self-funding, assist you in explaining the solution to clients and then determine whether it is right for their company by comparing and contrasting it to a fully insured solution.
The document outlines strategies for captive insurance for high net-worth clients, including an overview of captive insurance structures and domiciles. It discusses pure captives, group captives, rent-a-captives and protected cell captives. Key considerations for captive insurance include tax strategies under IRS revenue rulings and using captives for estate planning.
LifeHealthPro - Heres why cash value life insurance is a superior productJose Ariel Taveras
The document discusses the advantages of cash value life insurance over term life insurance and other financial assets. It outlines three main categories of advantages for cash value life insurance: 1) Tax advantages, such as tax-free growth of cash value and tax-free death benefits; 2) Financial advantages, as life insurance is designed using actuarial models to provide guarantees and potential increases in death benefits; and 3) Legal advantages, like state legal protections and guarantees of insurers. The document promotes cash value life insurance as a superior financial product compared to alternatives due to these inherent advantages.
Indexed universal life insurance policies from Aviva combine the features of traditional universal life insurance with the potential to earn interest based on the performance of a stock market index. The policies provide life insurance protection, potential for cash value growth, and flexibility. Premium payments are initially placed in a basic interest strategy and then may be allocated to indexed strategies where interest is credited based on the movement of a stock market index, subject to participation rates and caps. This limits downside risk while allowing upside potential.
Survivor universal life insurance 4088541883 san jose california connie dello...Connie Dello Buono
connie dello buono 4088541883 san jose california ca life ins lic 0G60621 on page 3 is about preserving your heir's inheritance, charitable gifts, key person coverage and wealth transfer
The document discusses the valuation of pension liabilities and proposes an alternative accrual rate method. It argues that:
1) Current market-consistent discount rate methods can introduce large errors in liability valuations compared to the implicit accrual rates in contribution and benefit promises.
2) Pension liabilities should be valued based on accumulated contributions plus accrued interest, similar to insolvency procedures, rather than discounted projected benefits.
3) This accrual rate method provides a more objective, accurate and time-consistent valuation that better reflects the original commitments made.
The document discusses various concepts related to insurance including:
1. It defines a utility function and explains how it is used to represent consumer preferences and welfare for different consumption levels and probabilities of states occurring in insurance.
2. It discusses key features of the individual risk model including how consumption levels and probabilities are incorporated into the utility function.
3. It explains how the central limit theorem can be applied in insurance problems by allowing inferences about event probabilities to use normal approximations even if the underlying data is not normally distributed, which is useful for factors like determining claim probabilities and identifying changes over time.
- The Canadian life insurance industry is facing significant challenges due to prolonged low interest rates, changes to accounting standards, and proposed changes to regulations governing life insurance policies.
- Insurers are finding it difficult to generate sufficient returns to cover long-term liabilities in the current interest rate environment. They have increased prices and discontinued some permanent life insurance products.
- Proposed changes to rules around the "exempt test" that governs tax treatment of life insurance policies could reduce the amount clients can accumulate in universal and whole life policies. Insurers and advisors face challenges adapting to these changes.
This document discusses international insurance regulation, specifically regarding the differences between property/casualty and life insurance contracts and their accounting implications. Key points include:
- Property/casualty contracts are usually short-term while life/annuity contracts are long-term, spanning decades.
- Claims outcomes for property/casualty insurance vary widely each year depending on events, while life insurance claims are more predictable.
- Statutory accounting principles (SAP) and generally accepted accounting principles (GAAP) have some differences in how they value assets and recognize revenues and expenses.
Terminated vested cashouts can provide benefits to plan sponsors by reducing pension liability and costs. However, some sponsors are hesitant due to perceived concerns. This document addresses 10 common concerns: 1) Interest rates are too low, but waiting risks missing opportunities. 2) Using fixed income assets to pay lump sums preserves portfolio risk. 3) Funded status may dip but economic costs are reduced. 4) Settlement accounting can be avoided or may not negatively impact share price. 5) Contributions may accelerate slightly but long-term costs are reduced. 6) Participants have flexibility and many roll over funds. 7) Cashouts can support eventual plan termination. 8) Data cleanup is more efficient now. 9) Costs are often justified
Chapter 6: FINANCIAL OPERATIONS OF I NSURERSMarya Sholevar
1-Liabilities: Loss Reserves
A loss reserve is the estimated cost of settling claims for losses that have already occurred but that have not been paid as of the valuation date . More specifically, the loss reserve is an estimated amount for (1) claims reported and adjusted but not yet paid, (2) claims reported and filed, but not yet adjusted, and (3) claims for losses incurred but not yet reported to the company .
Loss reserves in property and casualty insurance can be classified as case reserves, reserves based on the loss ratio method, and reserves for incurred but not reported claims.
2-Policyholders’ Surplus
Policyholders’ surplus is the difference between an insurance company’s assets and liabilities . It is not calculated directly—it is the “balancing” item on the balance sheet.
If the insurer were to pay all of its liabilities using its assets, the amount remaining would be policyholders’ surplus.
Surplus can be thought of as a cushion that can be drawn upon if liabilities are higher than expected.
Surplus represents the paid-in capital of investors plus retained income from insurance operations and investments over time.
The level of surplus is also an important determinant of the amount of new business that an insurance company can write.
3-Income and Expense Statement
The income and expense statement summarizes revenues received and expenses paid during a specified period of time .
Revenues are cash inflows that the company can claim as income. The two principal sources of revenues for an insurance company are premiums and investment income.
Earned premiums represent the portion of the premiums for which insurance protection has been provided .
Expenses Partially offsetting the company’s revenues were the company’s expenses, which are cash outflows from the business.
The major expenses for an Insurance Company:
Adjusting claims
Paying the insured losses
Underwriting
4-Measuring Profit or Loss
A simple measure that can be used is the insurance company’s loss ratio and expense ratio.
The loss ratio is the ratio of incurred losses and loss adjustment expenses to premiums earned .
Loss ratio= (Incurred losses+Loss adjustment expenses)/Premiums earned
The expense ratio is equal to the company’s underwriting expenses divided by written premiums .
Expense ratio=Underwriting expenses/Premiums written
5-Rate-Making Methods
The document is a letter from the American Council of Life Insurers (ACLI) responding to an IASB discussion paper on accounting for dynamic risk management. The ACLI appreciates IASB's recognition of the importance of dynamic hedging but has concerns about uncertainties in the discussion paper, such as issues related to hedge effectiveness. The ACLI is also concerned that the discussion paper focuses on interest rate risk management and a balance sheet approach, which does not address other risks or the business model of life insurers where a significant portion of assets are measured at fair value through other comprehensive income. The ACLI encourages IASB to continue its work to resolve these issues and recognize that an entity's business model should be
Self-Owned Life & Retirement Insurance Arrangement (S.O.L.A.R.)Lee Rogers
A Self Owned Life & Retirement (S.O.L.A.R.) Insurance Arrangement is an arrangement where an executive purchases a Voya Indexed Universal Life-Global Choice (Voya IUL-Global Choice) policy, issued by Security Life of Denver Insurance Company, to provide death benefit protection and to help accumulate funds for retirement. The arrangement can be funded through employer contributions (as a §162 bonus plan), through after-tax contributions from the executive, or a combination of both. While premium payments must be treated as ordinary income, the executive can borrow money from the Voya IUL-Global Choice life insurance policy to pay income taxes. The executive can use the policy as a source of supplemental retirement income, as a source of survivorship benefits, or both.
The document discusses various aspects of insurance companies, including their key operations. It begins by describing how insurance companies handled claims from the 2005 Mumbai floods. It then discusses the main operations of insurance companies, including rate making, underwriting, production (sales), claims settlement, reinsurance, and investments. Insurance companies collect premiums, pay claims, and invest premiums to earn income. They distribute policies through agents or direct selling. Reinsurance allows risks to be shared between insurers.
This document provides information about life insurance policies in India. It discusses different types of life insurance policies like term insurance, whole life insurance, endowment policies, money back plans, children's policies, annuity plans, and unit linked insurance plans. It also answers frequently asked questions about life insurance policies, including how premiums, surrender values, and claims are calculated for conventional and unit linked policies. The document aims to educate policyholders about various aspects of life insurance.
Regular reviews of life insurance policies are recommended to ensure they continue meeting clients' needs and goals as circumstances change. Common issues found include policies with lower-than-expected returns, smokers still classified as such after quitting, and large outstanding policy loans. A policy evaluation process examines current needs and policies, identifies issues, and recommends potential solutions like policy improvements or alternative options.
Defined Benefits in a Defined Contribution Planmangojulie
Plan sponsors appear intrigued by the possibility of providing a pension or lifetime income guarantee to DC plan participants. What are the issues relating to successfully providing an in-plan income guarantee for a defined contribution plan, e.g. 401(k).
Allocating Assets And Discounting Cash Flows Pension Plan FinanceCarrie Cox
This document discusses two pension decisions that firms must make when offering a defined benefit pension plan: choosing a discount rate to value pension liabilities and allocating pension assets. It begins by reviewing theories on how market frictions like taxes and imperfect capital markets impact the optimal asset allocation. It then discusses how the discount rate should depend on the risk of the pension promise in both frictionless and imperfect markets. The document aims to examine these decisions and compare theories to actual firm practices, providing context for analyzing the shift from defined benefit to defined contribution plans and its effects.
An endowment policy is basically a life insurance policy which, apart from covering the life of the insured, helps the policyholder to save regularly over a certain time, so that he/she gets a lump sum amount on the policy maturity in case he/she lasts the policy term.
A life insurance endowment policy pays the complete sum assured to the beneficiaries if the insured expires during the policy term or to the policyholder on the maturity of the policy if he/she survives the term. Hence, it fulfills the dual necessity for savings and life cover under a common plan.
Universal life insurance separates a policy into mortality, expense, and cash value components. This allows flexibility to modify premiums or death benefits in response to changing needs. Premiums deduct monthly charges for mortality and expenses from the cash value balance, which earns interest. Universal life comes in two types - type I pays a fixed death benefit while type II pays the face value plus cash value. Universal life is useful for needs that may change over time like family protection, business planning, or accumulation goals.
A toxic combination of 15 years of low growth, and four decades of high inequality, has left Britain poorer and falling behind its peers. Productivity growth is weak and public investment is low, while wages today are no higher than they were before the financial crisis. Britain needs a new economic strategy to lift itself out of stagnation.
Scotland is in many ways a microcosm of this challenge. It has become a hub for creative industries, is home to several world-class universities and a thriving community of businesses – strengths that need to be harness and leveraged. But it also has high levels of deprivation, with homelessness reaching a record high and nearly half a million people living in very deep poverty last year. Scotland won’t be truly thriving unless it finds ways to ensure that all its inhabitants benefit from growth and investment. This is the central challenge facing policy makers both in Holyrood and Westminster.
What should a new national economic strategy for Scotland include? What would the pursuit of stronger economic growth mean for local, national and UK-wide policy makers? How will economic change affect the jobs we do, the places we live and the businesses we work for? And what are the prospects for cities like Glasgow, and nations like Scotland, in rising to these challenges?
Optimizing Net Interest Margin (NIM) in the Financial Sector (With Examples).pdfshruti1menon2
NIM is calculated as the difference between interest income earned and interest expenses paid, divided by interest-earning assets.
Importance: NIM serves as a critical measure of a financial institution's profitability and operational efficiency. It reflects how effectively the institution is utilizing its interest-earning assets to generate income while managing interest costs.
Discover the Future of Dogecoin with Our Comprehensive Guidance36 Crypto
Learn in-depth about Dogecoin's trajectory and stay informed with 36crypto's essential and up-to-date information about the crypto space.
Our presentation delves into Dogecoin's potential future, exploring whether it's destined to skyrocket to the moon or face a downward spiral. In addition, it highlights invaluable insights. Don't miss out on this opportunity to enhance your crypto understanding!
https://36crypto.com/the-future-of-dogecoin-how-high-can-this-cryptocurrency-reach/
Abhay Bhutada, the Managing Director of Poonawalla Fincorp Limited, is an accomplished leader with over 15 years of experience in commercial and retail lending. A Qualified Chartered Accountant, he has been pivotal in leveraging technology to enhance financial services. Starting his career at Bank of India, he later founded TAB Capital Limited and co-founded Poonawalla Finance Private Limited, emphasizing digital lending. Under his leadership, Poonawalla Fincorp achieved a 'AAA' credit rating, integrating acquisitions and emphasizing corporate governance. Actively involved in industry forums and CSR initiatives, Abhay has been recognized with awards like "Young Entrepreneur of India 2017" and "40 under 40 Most Influential Leader for 2020-21." Personally, he values mindfulness, enjoys gardening, yoga, and sees every day as an opportunity for growth and improvement.
Enhancing Asset Quality: Strategies for Financial Institutionsshruti1menon2
Ensuring robust asset quality is not just a mere aspect but a critical cornerstone for the stability and success of financial institutions worldwide. It serves as the bedrock upon which profitability is built and investor confidence is sustained. Therefore, in this presentation, we delve into a comprehensive exploration of strategies that can aid financial institutions in achieving and maintaining superior asset quality.
An accounting information system (AIS) refers to tools and systems designed for the collection and display of accounting information so accountants and executives can make informed decisions.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
New Visa Rules for Tourists and Students in Thailand | Amit Kakkar Easy VisaAmit Kakkar
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"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
1. Enhancing understanding of sophisticated planning
strategies and their applications.
M Intelligence
Participating Whole Life Basics—
Dividends and Dividend Interest Rates
This M Intelligence piece will explore the product
mechanics and design considerations of Whole Life
(WL) insurance. There are two general categories of
WL: Participating WL (PWL) and Non-Participating
WL (NPWL). Both are forms of permanent life
insurance; where PWL differs from the latter, however,
is in its ability to participate in the financial gains
(and losses) of the insurance carrier through annual
distributions. The PWL policyowner is eligible to
receive an equitable portion of the issuing carrier’s
earnings, known as the divisible surplus, in the form of
a dividend. Put another way, a policyowner will receive
a proportionate return in the form of a dividend
payment, so far as the carrier’s actual investment
earnings, expenses, and mortality experience are better
than the sum of the policy’s guaranteed assumptions
and corporate obligations.
This entitlement to dividends does not exist in NPWL.
A PWL policy is a contract between the policyowner
and the insurance company with lifetime coverage. If
the policyowner pays the required base premium, the
death benefit will be guaranteed for life. Additionally,
the PWL policy will endow at a predetermined age
(usually 100 or 121). Endowment is when the cash
value becomes equal to the death benefit. Three key
assumptions are made to arrive at the guaranteed
values of a PWL policy: (1) a conservative interest rate
that is typically 4% or less, (2) a conservative mortality
assumption that is typically the prevailing mortality
table used for calculating carrier reserves, and (3)
conservative expenses.
Premiums paid on WL are deposited into the
insurance company’s general account. The company
will use these funds in a variety of ways, including
apportions to reserves, funding operations, personnel,
and other business expenses. The general account
portfolios of all insurance carriers primarily consist of
investment-grade fixed income instruments, such as
bonds and mortgages.1
As stated previously, insurance carriers selling PWL
typically price the product conservatively. This
approach to pricing increases the likelihood that the
policies, as a group, will generate profits. Following
each year’s operations, the insurance carrier’s Board
of Directors decides how much of these surplus
funds will be passed back to PWL policies in the form
of dividends.
Actuaries then divide the surplus equitably among the
participating policies, a practice commonly known
as the Contribution Principle, which holds that the
divisible surplus should be allocated to policies in
equal proportion to the policy’s contribution to the
overall surplus.
1 Source: Best Statement File (2014), A.M. Best.
May 2016
2. M Intelligence
Participating Whole Life Basics—Dividends and Dividend Interest Rates
May 2016
What is a Dividend?
A dividend payment is considered a return of excess
premium, which is not guaranteed. The policyowner
can elect to receive dividends in cash, or direct them
to be applied back to the policy in several different
ways. Near the end of each calendar year, insurance
carriers declare their dividend interest rates (DIR) on
PWL policies for the upcoming year. The DIR is stated
as a percentage; however, it is important to remember
that a DIR is not an earnings rate applied to policy
account values.
Once declared, the policyowner can elect how dividend
funds will be used. The most common options include
using the dividend to reduce scheduled premiums or
to purchase Paid-Up Additions (PUAs). PUAs have
their own separate cash values and death benefits.
This is why the non-guaranteed illustration of a PWL
policy will show either a decreasing premium amount
(dividend used to reduce premium) or an increasing
death benefit (dividend used to purchase PUAs). Other
options include using the dividend to repay an existing
loan or having the dividend paid in cash, both of
which will reduce the policyowner’s tax basis in the life
insurance contract.2
A policyowner retains the right to
change the dividend option year to year. The default
option for dividends on most PWL policies is PUAs.
How is the Dividend Calculated?
Actual dividends reflect the experience of the
company and depend on the company’s annual results
in three key areas:
1. Investment Earnings: The earnings the insurance
carrier receives on its assets may be more or less
favorable than projected. If earnings are more
favorable, then dividends may be higher and
vice-versa.
2 Rev. Rul. 2003-95, 2003-2 CB 358, 08/15/2003, IRC Sec(s). 7702.
2. Mortality: If the insurance carrier experiences
favorable mortality experience with less-than-
expected death claims, dividends may be positively
impacted and vice-versa.
3. Expenses: If the carrier’s actual business expenses
are more favorable than expected, costs allocated
per policy may decrease accordingly, leading to
positive effects on dividends.
Sample Dividend Calculation
This approach may vary by insurance carrier
and product.
Investment Earnings Component
Assume the declared dividend rate is 6.0%, with a
guaranteed rate of 4.0%, and a reserve of $100,000.
Interest Return = (6.0% − 4.0%) x $100,000 = $2,000
Mortality Component
Assume the actual mortality experience rate is $1.00
per thousand of insurance, the guaranteed mortality
rate is $2.00, and the face amount is $1 million.
Mortality Return = ($2.00 − $1.00) x ($1,000,000 −
$100,000)/1,000 = $900
Expense Component
Assume the carrier experiences higher-than-projected
business expenses during the period.
The Expense Component is negative $500.
Putting It Together
The dividend at the end of the policy year is:
Dividend = Interest + Mortality − Expense =
$2,000 + $900 + (-$500) = $2,400
The above calculations are theoretically
straightforward, but in practice, the inputs are
purposely not disclosed to the policyowner by the
2
3. M Intelligence
Participating Whole Life Basics—Dividends and Dividend Interest Rates
May 2016
insurance carrier. The primary PWL issuers do not
release the calculations used to arrive at the dividend
amount. These insurance carriers enjoy some of the
highest financial strength ratings in the life insurance
industry. It is important to note that ratings agencies
often grant high financial strength ratings to insurance
carriers whose policy liabilities are predominately
comprised of PWL policies because the carrier is
largely insulated from financial risk through the
ability to pass adverse financial consequences to
the policyowner via the dividend mechanism. The
bundled nature of PWL policy mechanics makes it
difficult for a policyholder to understand, evaluate, and
audit actual performance.
The Black Box
PWL policies have a bundled or black box architecture,
due to the lack of disclosure of policy charges and
dividend formulas. Therefore, policyowners are not
able to reconcile dividends and policy account values.
Many insurance carriers issuing PWL advertise long
histories of dividend payments; historically, interest
earnings have been higher than guaranteed rates
and mortality and expense charges have been lower
than the guarantees. There is no guarantee that
these conditions will continue and, consequently,
DIR performance may be less than illustrated at
policy issue.
The underlying drivers supporting PWL dividends
are shared by all life insurance companies (including
companies that issue universal life contracts) and
consist of mortality, expenses, and investment income.
The composition of this experience is affected by the
individual incidence of each separate component (e.g.,
favorable mortality experience can serve as a counter-
balance in a period of declining investment income).
Differences between DIR methodologies make it
difficult to compare DIRs across products. Therefore,
it is important to note that the actual dividend paid
reflects all experience factors (mortality, expenses, and
investment income) and not simply the current DIR.
Whole Life vs. Universal Life
PWL pricing starts with guaranteed values (premium,
cash values, and death benefit) based on conservative
assumptions and offers a non-guaranteed dividend to
pass on carrier experience (good or bad) that exceeds
the guarantees. Universal Life (UL) contracts are based
on the same assumptions, but start on the opposite
end of the spectrum with performance based on
non-guaranteed current carrier experience (i.e., current
assumptions), and include guaranteed assumptions
where charges cannot exceed the guaranteed maximum
charges and the crediting rate cannot be lower than
the guaranteed minimum crediting rate. The crediting
rate for a UL policy is the actual rate applied to the
policy values.
For UL, the risk transfer for each element is specified
and transparent to the policyholder; for PWL, risk
transfer for each element is accomplished through the
dividend mechanism. Both UL and PWL products
provide actual performance that is based on the
insurance company’s current experience.
Conclusion
PWL insurance policies present unique challenges
when assessing competitiveness for a new policy
acquisition, or reviewing the performance of an
existing policy due to the non-guaranteed black
box dividend mechanism. When evaluating any life
insurance policy, it is important to consider the client’s
needs and objectives to design a policy that reflects
their risk preference, ability to respond to future
changes in insurance costs resulting from ongoing life
insurance carrier experience—especially at a time when
many individuals are increasingly seeking financial
products that provide transparency and flexibility.
3