I’ve been playing around with the NPR (PBR) calcs as they would apply to term. I see some odd results and I’m wondering if others can sound off on whether they’ve seen the same things.
Let’s start with the case where you have a term product that only has a level period (no shock lapse and ART). That means that last part of Section 3.B.4.a does not apply.
The NPR (ignoring any flooring) can be negative for quite a few years. We are all used to CRVM expense allowances which are designed to produce reserves equal to zero at the end of year one, but these expense allowances seem to produce negative reserves for a number of years (unless I’m doing something wrong).
At a minimum, I know the reserve has to be quite negative at the end of year one because the valuation net premium is zero in year one and you have to pay the benefits and the expense allowance in year one so doing a retrospective reserve roll-forward (accumulated value of past premium less accumulated value of past benefits) would get you a number less than zero. And then after year one, it seems to take a while to work out of that hole.
I notice this most strongly on younger issue ages and non-tobacco cases. I believe this is for two reasons (1) mortality is relatively flat (as compared to older issue ages) and (2) the $2.50 expense allowance is relatively higher as compared to the resulting valuation net premiums.
Thoughts?
Let’s start with the case where you have a term product that only has a level period (no shock lapse and ART). That means that last part of Section 3.B.4.a does not apply.
The NPR (ignoring any flooring) can be negative for quite a few years. We are all used to CRVM expense allowances which are designed to produce reserves equal to zero at the end of year one, but these expense allowances seem to produce negative reserves for a number of years (unless I’m doing something wrong).
At a minimum, I know the reserve has to be quite negative at the end of year one because the valuation net premium is zero in year one and you have to pay the benefits and the expense allowance in year one so doing a retrospective reserve roll-forward (accumulated value of past premium less accumulated value of past benefits) would get you a number less than zero. And then after year one, it seems to take a while to work out of that hole.
I notice this most strongly on younger issue ages and non-tobacco cases. I believe this is for two reasons (1) mortality is relatively flat (as compared to older issue ages) and (2) the $2.50 expense allowance is relatively higher as compared to the resulting valuation net premiums.
Thoughts?
NPR (PBR) for Term
