I have a few questions regarding Life Contingent Payout Annuities and GAAP Accounting.
Payout annuities have not been given 5 star treatment at my company. The main reason for this is that they currently only represent roughly $20M in stat reserves compared to billions of stat reserves from our other Fixed and EIA deferred annuities. Being the low man on the totem pole / an actuarial student, I was tasked to work with these payout annuities.
Prior to 2015 my company set life contingent payout GAAP reserves = STAT reserves ( I guess since this was so low $$ no one bothered setting up separate best estimate + PAD assumptions). For 2015 + new life contingent payout issues my manager is suggesting a new approach to calculating GAAP reserves and setting assumptions. He does not want to deal with a DPL item. The extra work involved he claims is not worth it. So he suggests solving for a break even rate and use that rate to discount benefit payments for each policy. I believe this is similar to calculating the net GAAP reserve for FAS 91 non-life contingent payout annuities / investment contracts. However, we plan on doing this for our life-contingent payout annuities.
I see his logic. Since we would use a break even rate, there would be no gain at issue as PV of benefits and expenses will equal initial premium, and there is no need to set up a DPL. But I don’t see anything in GAAP literature that would support this. Does that exist? From what I understand, both FAS 60 and FAS 97 Limited Pay framework suggest that in setting up assumptions we should use best estimates + PAD. So this is where I am confused. Solving for a break even rate for each policy does not, to me, constitute a best estimate of rates. Or maybe I am mistaken.
I was wondering what you all think about this? Should I just do what I am asked? Or suggest the text book approach and defend it? What are the implications here in selecting one approach over the other ? Is what my manager suggests way out of line with FAS60/FAS97 guidance or does what he suggests not technically violate anything?
Thanks all for your input.
Payout annuities have not been given 5 star treatment at my company. The main reason for this is that they currently only represent roughly $20M in stat reserves compared to billions of stat reserves from our other Fixed and EIA deferred annuities. Being the low man on the totem pole / an actuarial student, I was tasked to work with these payout annuities.
Prior to 2015 my company set life contingent payout GAAP reserves = STAT reserves ( I guess since this was so low $$ no one bothered setting up separate best estimate + PAD assumptions). For 2015 + new life contingent payout issues my manager is suggesting a new approach to calculating GAAP reserves and setting assumptions. He does not want to deal with a DPL item. The extra work involved he claims is not worth it. So he suggests solving for a break even rate and use that rate to discount benefit payments for each policy. I believe this is similar to calculating the net GAAP reserve for FAS 91 non-life contingent payout annuities / investment contracts. However, we plan on doing this for our life-contingent payout annuities.
I see his logic. Since we would use a break even rate, there would be no gain at issue as PV of benefits and expenses will equal initial premium, and there is no need to set up a DPL. But I don’t see anything in GAAP literature that would support this. Does that exist? From what I understand, both FAS 60 and FAS 97 Limited Pay framework suggest that in setting up assumptions we should use best estimates + PAD. So this is where I am confused. Solving for a break even rate for each policy does not, to me, constitute a best estimate of rates. Or maybe I am mistaken.
I was wondering what you all think about this? Should I just do what I am asked? Or suggest the text book approach and defend it? What are the implications here in selecting one approach over the other ? Is what my manager suggests way out of line with FAS60/FAS97 guidance or does what he suggests not technically violate anything?
Thanks all for your input.
Calling All Payout Annuity Experts
0 commentaires:
Enregistrer un commentaire