More of a philosophical question than a practical question. Someone from an investment company is trying to value Life Insurance liabilities and looking for the appropriate interest rate to discount the liability cash flows of another company. Just about every interest rate having to do with liabilities is kept confidential. But, statutory interest rates are public. The reserve on most policies uses the same interest rate for the life of the product based on the issue year. Is there a reason why statutory interest rate is locked in at issue instead of being based on the current year's interest rate environment?
I realize the industry is being moved towards PBR for new issues in a few years (I am not sure how discount rates are dealt with). But, legacy policies will still be valued based on interest rates. Possible reasons are stability of reserve amounts, simplicity of calculation, etc. This decision was probably made years ago; not sure if anyone knows the history of the industry and why the decision was made to use issue year for Val Stat rate.
I realize the industry is being moved towards PBR for new issues in a few years (I am not sure how discount rates are dealt with). But, legacy policies will still be valued based on interest rates. Possible reasons are stability of reserve amounts, simplicity of calculation, etc. This decision was probably made years ago; not sure if anyone knows the history of the industry and why the decision was made to use issue year for Val Stat rate.
Why does Statutory valuation rate follow issue year instead of current year?
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