2007 General Meeting

Assemblée générale 2007

Montréal, Québec

2007 General Meeting

Assemblée générale 2007

Montréal, Québec

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

L’Institut canadien desactuaires

2007

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2007

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T100 and UL LCOI Lapse Studies ResultsT100 and UL LCOI

Lapse Studies Results

Lloyd Milani

Nikolai Serykh

November 30, 2007

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AgendaAgenda

• UL LCOI Industry Pricing– 2006 Munich Re Survey

• Lapse Studies Highlights• Scope and Method• Results

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2007

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UL LCOI Industry PricingUL LCOI Industry Pricing

• 2006 Munich Re Survey– Sales and Funding– Lapse and Interest– Profit

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UL Level COI SalesUL Level COI Sales

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UL Level COI Funding LevelUL Level COI Funding Level

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UL LCOI Pricing LapsesUL LCOI Pricing Lapses

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UL LCOI Lapse and InterestUL LCOI Lapse and Interest

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2007

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UL LCOI - ProfitabilityUL LCOI - Profitability

2007

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T100 and UL LCOI Lapse Study 2007

T100 and UL LCOI Lapse Study 2007

• Request for data - Beginning 2005• Enhanced Fields

– Cash Value– NAAR Pattern– UL Deposit

• Results Database

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Working GroupWorking Group

• Nikolai Serykh• Elena Stoyanova

2007

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Individual Life Subcommittee of the Research Committee

Individual Life Subcommittee of the Research Committee

• Lloyd Milani, Chairperson• Stephen Beal• Marc-Andre Belzil• William Brath• Emile Elefteriadis• Beth Fitzmaurice• Marc Tardif

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AgendaAgenda• UL LCOI Industry Pricing

– 2006 Munich Re Survey

• Lapse Studies Highlights• Scope and Method• Results

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Participating CompaniesParticipating Companies• AIG• Canada Life• Co-operators

Life• Desjardins• Empire Life

• Industrial Alliance• Manulife Financial• Standard Life• Sun Life• Transamerica Life• Wawanesa

Top 5 companies contribution to total

policy exposure:

97% for T100 86% for UL LCOI

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2007

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Highlights – T100 StudyHighlights – T100 Study• 1999-2004 Period• 92,587 lapses

– Duration 1-10 - 73,064 lapses– Duration 11-20 - 19,594 lapses– Duration 21-25 – 156 lapses

• Over 4.0 million policy exposures• Over 251 billion face amount exposure• Compared to 1999 T100 Lapse Study

– 204.5% of exposure by policy– 139.0% of exposure by face amount

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Highlights – UL LCOI StudyHighlights – UL LCOI Study• 2002-2004 Period• 103,049 lapses

– Duration 1-5 - 74,972 lapses– Duration 6-10 - 24,526 lapses– Duration 11-15 - 3,551 lapses

• Over 2.1 million policy exposures• Over 304 billion face amount exposure• Compared to 2003 UL LCOI Lapse

Study– 167.0% of exposure by policy– 149.0% of exposure by face amount

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MethodMethod

• Calendar year method• Exposure period as provided by

company without modification• Following Status codes included

– Active– Death– Lapsed and Surrendered

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ScopeScope

• Results by Number and by Face Amount• Durations 1-25 for T100 and 1-15 for UL

– Total– Calendar Year– Sex and Joint– Smoking Status– Policy Size– Issue Age– Premium Frequency– Cash Value Availability (T100 only)

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T100 Lapse Study ResultsT100 Lapse Study Results• Total• Calendar Year• Sex and Joint• Smoking Status• Policy Size• Issue Age• Premium Frequency• Cash Value Availability• Comparison to

– 1999 Term-to-100 Lapse Study

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Term-to-100 StudyTerm-to-100 Study

Chart 1a - Composite Lapse Rates

0%

1%

2%

3%

4%

5%

6%

7%

8%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Policy Year

By Number

By Amount

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T100 Study by Calendar YearT100 Study by Calendar YearChart 2b - Composite Lapse Rates by Calendar Year

(by Amount of Sum Assured)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Policy Year

1999

2004

1999-2004

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T100 Study by Sex and Joint Status

T100 Study by Sex and Joint Status

Chart 3b - Lapse Rates by Sex(by Amount of Sum Assured)

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Policy Year

Male Single Female Single

Joint 1st Joint 2nd

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T100 Study by Smoking StatusT100 Study by Smoking Status

Chart 4b - Lapse Rates by Smoking Status (by Amount of Sum Assured)

0%

2%

4%

6%

8%

10%

12%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Policy Year

Non-Smoker

Smoker

Aggregate

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T100 Study by Policy SizeT100 Study by Policy Size

Chart 5b - Lapse Rates by Policy Size (by Amount of Sum Assured)

0%

1%

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5%

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9%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Policy Year

<$100K

$100K-249K

$250K+

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T100 Study by Issue AgeT100 Study by Issue Age

Chart 6b - Lapse Rates by Issue Age (by Amount of Sum Assured)

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9%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Policy Year

25-34 35-44 45-54

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T100 Study by Premium Frequency

T100 Study by Premium Frequency

Chart 7b - Lapse Rates by Premium Frequency (by Amount of Sum Assured)

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6%

7%

8%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Policy Year

Non-Monthly

Monthly

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Term-to-100 Studyby Cash Value Availability (1)

Term-to-100 Studyby Cash Value Availability (1)

Chart 9b - Lapse Rates by Timing of Cash Value Availability(by Amount of Sum Assured)

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3%

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6%

7%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Policy Year

Available CV

No CV or CV in 5+ years

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Term-to-100 Studyby Cash Value Availability (2)

Term-to-100 Studyby Cash Value Availability (2)

Chart 9b - Lapse Rates by Timing of Cash Value Availability(by Amount of Sum Assured)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Policy Year

Available CV

No CV or CV in 5+ years

CV in next 5 Years

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Term-to-100 Study1999 vs 2007

Term-to-100 Study1999 vs 2007

• Composite Rates at Durations 1-15• 1999 vs 2007 without Cash Value

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T100 Study – 1999 vs 2007T100 Study – 1999 vs 2007

Chart 1c - Composite Lapse Rates(by Amount of Sum Assured)

0%

1%

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5%

6%

7%

8%

9%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

1999 Study 2007 Study

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T100 Study 1999 vs 2007 without Cash Value

T100 Study 1999 vs 2007 without Cash Value

Composite Lapse Rates(by Amount of Sum Assured)

0%

1%

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3%

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6%

7%

8%

9%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

1999 Study

2007 Study wo CV

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UL LCOI Lapse Study ResultsUL LCOI Lapse Study Results

• Total• Policy Size• Comparison to

– 2003 UL LCOI Lapse Study– 2007 Term-to-100 Lapse Study– Munich Re Pricing Survey

2007

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UL LCOI Lapse StudyUL LCOI Lapse Study

Chart 1a - Composite Lapse Rates

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

Laps

e R

ate

By Number

By Amount

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2007

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UL LCOI Lapse StudyPolicy Size

UL LCOI Lapse StudyPolicy Size

Chart 5b - Lapse Rates by Policy Size (by Amount of Sum Assured)

0%

2%

4%

6%

8%

10%

12%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

Laps

e R

ate

(by

Am

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<$100K

$100K-$249K

$250,000+

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UL LCOI Study – 2003 vs 2007UL LCOI Study – 2003 vs 2007

• Overall• Differences

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UL LCOI – 2003 vs 2007UL LCOI – 2003 vs 2007

Chart 1c - Composite Lapse Rates by Amount of Sum Assured

0%

1%

2%

3%

4%

5%

6%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

Laps

e R

ate

(by

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2003 Study

2007 Study

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UL LCOI Study – 2003 vs 2007Differences

UL LCOI Study – 2003 vs 2007Differences

• Different Study Periods:– 1997-2001 vs 2002-2004

• Shift in Participants Contribution• Change in Sample Demographic:

– Male = -0.8% Female = +5.6%– Joint 1st to Die = -1.2%– Joint 2nd to Die = -3.6%

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2007

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UL LCOI vs Term-to-100UL LCOI vs Term-to-100

• Composite Rates at Durations 1-15• Non-Smoker, Single, 100K+ Band,

Monthly Premium Mode

2007

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UL LCOI vs Term-to-100UL LCOI vs Term-to-100Chart 1e - Composite Lapse Rates

by Amount of Sum Assured

0%

1%

2%

3%

4%

5%

6%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

T100 UL LCOI

2007

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UL LCOI vs Term-to-100NS, Single, 100K+, Monthly ModeUL LCOI vs Term-to-100

NS, Single, 100K+, Monthly Mode

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Policy Year

La

ps

e R

ate

(b

y A

mt)

T100

UL LCOI

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Munich Re Pricing SurveyMunich Re Pricing Survey

• 2002 Assumptions vs 1997-2001 Experience

• 2006 Assumptions vs 2002-2004 Experience

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2003 UL vs MRe Survey 2002Issue Age 25-35

2003 UL vs MRe Survey 2002Issue Age 25-35

2007

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2007

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2007 UL vs MRe Survey 2006Issue Age 25-34 (1)

2007 UL vs MRe Survey 2006Issue Age 25-34 (1)

Pricing vs Valuation vs Experience

0%

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2%

3%

4%

5%

6%

7%

8%

9%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Policy Year

Lap

se R

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(by

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UL Study - IA 25-34Valuation - IA 30Pricing - IA 30

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2007

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2007 UL vs MRe Survey 2006Issue Age 25-34 (2)

2007 UL vs MRe Survey 2006Issue Age 25-34 (2)

Pricing vs Valuation vs Experience -NS, Single, 100K+, Monthly Premium Mode

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Policy Year

Lap

se R

ate

(by

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t)

UL Study - IA 25-34Valuation - IA 30Pricing - IA 30

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2007ConclusionConclusion

• Careful with experience where exposure is limited

• Lapse Rates pattern are similar in both studies• T100 lapse rates are lower than UL LCOI

after duration 8• UL LCOI composite experience is in line

with average pricing and valuation assumptions

• Average pricing and valuation assumptions are generally higher than actual experience for UL Non-Smoker, Single, Band 100K+, Monthly Premium Mode

2007

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2007LimitationsLimitations

• Not every company was able to contribute each experience year

• Basic Policies only• Limited Amount of Exposure• T100 Data

– Date of Cash Value on set– Premium Cease Date

• UL YRT COI changes to Level COI• Partial Lapses• Increasing Face Amount

2007

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2007

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2007QuestionsQuestions