AKTUARIS.ORG.ID | Society Of Actuaries Of Indonesia GPV Discount Rates

(1)

Gross Premium Valuation

DISCOUNT RATES

(2)

2



Refresher: Fair Value

—

Assets

—

Liabilities

—

Duration



Extraction of discount rates from published

market data



Workshop using simple models of sample

policies:

—

Term (ROP)

—

Participating

(3)

Remember:

Life insurance is

1)

Intangible (not physical, it’s a “promise”)

2)

Contingent (mortality, maturity, surrender,

lapse,..)

3)

Long Term (could be a “life time”)

For each policy, we don’t know what the actual profit will be

until that individual policy finishes.

Reporting can be likened to posting an “interim” result.

(4)

4

Definition: Gross Premium Valuation

=

liability equal to the discounted value of future net cashflows

Cashflows (CF):

- Premiums - Expenses - Commission - Contingency - Death - Disablement - Surrender - Maturity - Tax

Does not include investment income.

- This is covered in the discount factors

GPV = - PV (CF

_t

)

all t

CF

_t

= total net cashflow

at time t

= -

v

t

CF

t t = 0

(5)

Policy data - premium - cover - age/sex - term

Assumptions - economic - actuarial

Gross Premium Valuation

Output: Cashflow

1 2 3 4

Premiums Expenses Commission Death

Disablement Surrender Maturity Tax

Valuation Model

(6)

6 Policy data - premium - cover - age/sex - term Assumptions - economic - actuarial

Gross Premium Valuation

Output: Cashflow

1 2 3 4

Premiums Expenses Commission Death Disablement Surrender Maturity Tax

Valuation Model

Schematic:

Next Steps

4) Set economic

assumptions

2) Build a model to

project cashflows

3) Need best estimate

actuarial assumptions

1) Will need policy

inforce data

(7)

Economic

- Investment returns - Inflation - benefits - expenses Actuarial - Mortality - Morbidity - Surrender - Expenses - acquisition - maintenance - investment

- Actual Investments

- Target Investment Strategy

- Market indices

- Expert analysis

- Industry experience

- Company experience

- Reinsurer

- Actuarial Investigations

- Activity based expense costings

- Analysis of past Earnings

(8)

8

Aims of IFRS

1.

To provide a Realistic view of the financial status of the reported entity

2.

Comparability:



Across companies



Across industries



Across countries

Principles based:

•

Published Guidelines

•

Not hard-set formulae and assumptions

+Can be adapted to exactly fit the business

+Flexible for changing conditions

-A range of interpretations

(9)



Refresher: Fair Value

—

Assets

—

Liabilities

—

Duration



market data



policies:

—

Term (ROP)

—

(10)

10

Fair Value



Also known as “Realistic” or “Market Based”



All components of the balance sheet



Earnings/Profit = change in Fair Value Balance Sheet



Assets at Market Value



Published data (eg shares, government bonds)



Independent assessment (eg Property)



Linked to market data (eg non publically traded investments)

(11)

So how does this link to the valuation of

Liabilities?

All investments are, in fact, a string of cashflows:



Bonds/Fixed interest



A series of coupon payments plus repayment of principal



Shares



A series of dividends



The capital appreciation reflects the change in value of future dividend

streams



Property



Rental stream, less costs of maintenance

(12)

12

How do markets place a value of these income

streams?



DISCOUNTING



Discount rate



Time period

The market valuation of assets is driven by Discount Factors placed

on their expected income stream. Dependent on:

— Interest rates (varies by time/duration)

— Risk/liquidity premium

Assume that Government Bonds are liquid and “risk free”, ie their

coupons and redemption are “100% certain”

Then the interest rates on government bonds can be used to calculate the

discount factors for all “Certain” Cashflows:

(13)

The same applies to liabilities:

Discount rates



Value cashflows according to their (investment market

related) certainty



“Certain” cashflows should be valued as per risk free rate



“Uncertainties” in respect of Non Investment related

Contingencies (such as mortality) are covered within the

setting of the actuarial assumptions

All* cashflows

should be discounted

at the risk free rates

* The ONLY exceptions are any cashflow

dependent on actual investment Performance. Eg:

•Par dividend

(14)

14

Corollaries



Liabilities are independent of actual (or assumed future)

investment mix



Eg An obligation to a policyholder does not change because the

investment department decided to invest in more shares



Liabilities fall if interest rates rise



But so does the market value of assets.



Therefore a resultant profit or loss from interest rate changes is

dependent on the portfolio cashflow and duration matching (ALM)

—

If the portfolio duration volatility (modified duration) of investments is greater

than liabilities then a reported loss results from a rise in interest rates

—

Vice versa for a fall

(15)

Question 1: What about Unit Linked?



Like all insurance liabilities unit linked should be valued as the

PV of future net cashflows:



Premiums and investment returns



Insurance Claims, surrenders, maturities



Expenses and commissions



Fund growth assumptions impact the projected amounts for

surrenders and maturities



Other cashflows are “certain”



One approach is “strip out” the unit fund parts.



Left with charges (on premium and funds) and expenses and

commissions

(16)

16

Question 2: What about Par Business?



Like all insurance liabilities Par business should be valued as

the PV of future net cashflows:



Premiums and investment returns



Insurance Claims, surrenders, maturities, dividends



Expenses and commissions



Dividend assumptions, if commuted, impact the projected

amounts for surrenders and maturities



Other cashflows are “certain”



One approach is strip out the dividend part.



Projected dividend needs to be consistent with assumed investment

return on investments

(17)

Question 3: are there other Economic assumptions?

Yes:



Investment related expenses



Net off discount rate



Inflation



General expense inflation (eg used for policy indexation) should be

consistent with interest rates

Eg long-term inflation shouldn't be higher than interest rates



Inflation for office expenses should be consistent with budgets



Policyholder Dividends

(18)

18

Question 4. What discount rate to use for very

long term?



The longest available government bonds are 30 years



But many liability cashflows extend beyond that



Considerations:



Use 30 year interest rate

But can lead to very volatile results



Prescribed interest rate

But needs to be consistent with market reality



Smoothed interest rate

Eg average 30 year rate for last 5 years,

Eg extrapolation of yield curve

(19)

5. What is Matching and Duration?



If we consider that liabilities are a series of net cashflows



Cashflow Matching is whereby a set of assets is purchased

such that their cashflows exactly offset the liability cashflows



If this could be achieved:



Value of liabilities exactly = MV of assets



The balance sheet is fully immune to changes in interest rates



However, in practice, perfect cashflow matching is not

possible.



A more realistic aim is to match the Duration of assets and liabilities

(20)

20

Duration



Average (Mean) Duration:

PV of cashflows (weighted by duration they are due) PV of cashflows



Modified Duration:

 Derivative of (change in) price per small change in interest rates

 Modified duration = v * Mean duration Example:



If the $100m asset portfolio has a modified duration of 8 years:

 If interest rates rise by 0.1% then the MV of the portfolio is:

$100 * (1+(8*-0.1%)) = $99.2m, a reduction of $0.8m



Also assume that the portfolio belongs to a life insurance company:

 Fair value liabilities of $80m  Modified duration of 15 years

 If interest rates rise by 0.1% then the fair value of the liabilities is

$80m*(1+(15*-0.1%) = $78.8, a reduction of $1.2m

(21)

Remember:

THERE IS NO SUCH

THING AS A FREE

(22)

22

Eg arbitrarily changing the Par dividend rate

should not create

“instant” profits

Eg changing the assumed asset mix

should not create

“instant” Profits

Remember:

THERE IS NO SUCH

THING AS A FREE

(23)

AASB 1038 paragraph 10.2.2

Investments backing life insurance liabilities or life

investment contract liabilities are permitted to be

measured at fair value through profit or loss under AASB

139. This is because the measurement of life insurance

liabilities under this Standard incorporates current

information and measuring the financial assets backing

these life insurance liabilities at fair value eliminates or

significantly reduces a potential measurement

inconsistency which would arise if the assets were

classified as available for sale or measured at amortised

cost.

Example: Australian IFRS

(24)

24

AASB 1038: Discount Rates

1. To the extent that the benefits under life insurance contracts are not contractually linked to the performance of the assets held, the life insurance liabilities shall be discounted for the time value of money using risk-free discount rates based on current observable, objective rates that relate to the nature, structure and term of the future obligations. 2. To the extent that the benefits under life insurance contracts are contractually linked to

the performance of the assets held, the life insurance liabilities shall be discounted using discount rates based on the market returns on assets backing life insurance liabilities.

3. In applying number 1 above, the discount rates adopted are not intended to reflect risks inherent in the liability cash flows, which might be allowed for by a reduction in the

discount rate in a fair value measurement, nor are they intended to reflect the insurance and other non-financial risks and uncertainties reflected in the life insurance liabilities. The discount rates are not intended to include allowance for the cost of any options or guarantees that are separately measured as part of the life insurance liabilities.

4. In applying number 1 above, typically, government bond rates may be appropriate

discount rates for the purposes of this Standard, or they may be an appropriate starting point in determining such discount rates.

(25)

AASB 1038: Deposit Components

Some life insurance contracts contain both an insurance

component and a

deposit component

. In some cases,

an insurer is permitted to

unbundle

those components

(26)

26



Refresher: Fair Value

—

Assets

—

Liabilities

—

Duration



Discount Rates



policies:

—

Term (ROP)

(27)

Discount Rates (1/3)



This Section discusses the proposed GPV regulation to be

implemented in Indonesia and especially on the topic of risk

discount rates to be employed in the valuation of reserves.



To be consistent with the development of IFRS and Fair Value

Accounting, we are proposing that the expected future cashflows to

be discounted with risk free rates based observable, objective

rates that relate to the nature, structure and term of future

obligation.



In Indonesia, this typically relates to the yield of bonds which is

issued by the Government of Indonesia, including both IDR and

USD. We can used the yield-to-maturity of the Indonesian

(28)

28

Discount Rates (2/3)



In this presentation, we defined the spot yield and forward yield as

follows:

• Yield-to-maturity: is the internal rate of return (IRR, overall interest rate) earned by an investor who buys the bond today at the market price, assuming that the bond will be held until maturity, and that all coupon and principal payments will be made on schedule.

• Spot Yield: is the reference to fixed-income securities reimbursed at maturity, without any intermediate payment of coupons and/or

principal. For the purpose of this presentation, we assume the yield-to-maturity equals to spot yield.

• Forward Yield: is the implied yield from a spot yield curve of

(29)

Discount Rates (3/3)



Why is forward yield used?

• The forward yield is used because it represent the expected yield of investment of that particular period. The methodology we have

(30)

30

Steps in getting risk free forward yield curve

1. Obtain yield-to-maturity yield curve

• Check against other source or previous period

2. Derive forward yield curve

(31)

1. Obtaining risk-free rate



The definition of risk free rates would be Yield-To-Maturity (YTM)

of both IDR and USD Indonesian government bonds.



There are a number of sources one can obtain Indonesian

government bonds price information including:

• Data information service such as Bloomberg

• Indonesia Bond Pricing Authority (IBPA)

(32)

32

Indonesia Bond Pricing Authority (Lembaga Penilaian

Harga Efek)



On Sept 19th 2007 Bapepam-LK Regulation had issued regulation

No. V.C.3 regarding Bond Pricing Agency(LPHE). This regulation

regulates the requirements on establishment and liabilities of the

IBPA as an institution that conducts valuation on debt securities,

Sukuk, and other securities in a way that objective, independent,

credible, and accountable.

(33)

Information on IBPA website

(34)

34

Getting the bond yield info from IBPA website (1/3)

Bond

Market

(35)

Getting the bond yield info from IBPA website (2/3)

Daily MtM Price &

(36)

36

(37)

(38)

38

Getting the bond yield info from IDX website (1/3)

(39)

Getting the bond yield info from IDX website (2/3)

Indonesia Government

(40)

40

(41)



We have checked the bond yield information against Bloomberg.

(42)

42



The information is mostly consistent between Bloomberg and IBPA

except for the longer date securities.



For longer dated securities, the yield quoted by Bloomberg is lower

than those quoted by IBPA.



Considerations from previous slide:

• Use 30 year interest rate

• But can lead to very volatile results

• Prescribed interest rate

• But needs to be consistent with market reality

• Smoothed interest rate

• E.g. average 30 year rate for last 5 years,

• E.g. extrapolation of yield curve

• Needs to be accurately prescribed

(43)

43

2. Derivation of forward yield (1/3)



Using the information dated 23

rd

July as an example and

yield-to-maturity curve from IBPA. We are approximating spot rates using

the yield-to-maturity.



Derive forward yield curve from the spot yield curve using the

bootstraping formula:

• (1 + f_{(t-1) to (t)}) = (1 + r_t)t _{/ (1 + r} t-1)t-1

where

• r_t : spot yield from time 0 to t

Term to

Maturity Yield To Maturity

Term to

Maturity Yield To Maturity

Term to

(44)

44

2. Derivation of forward yield (2/3)



Using the formula from previous slide.



Eg. for forward rate between Year 2 to Year 3

F_{2 to 3} = (1 + r₃)3 _{/ (1 + r}

2)2 – 1

5.6064% = (1 + 5.1189%)3 _{/ (1 + 4.9760%)}2 _{- 1}

Rates Applicable Forward rate Rates Applicable Forward rate Rates Applicable Forward rate

From To From To From To

0 1 4.3607% 10 11 7.0268% 20 21 7.2481%

1 2 5.3938% 11 12 7.1568% 21 22 7.2101%

2 3 5.6064% 12 13 7.2503% 22 23 7.1722%

3 4 5.6652% 13 14 7.3120% 23 24 7.1367%

4 5 5.7727% 14 15 7.3472% 24 25 7.1011%

5 6 5.9545% 15 16 7.3603% 25 26 7.0643%

6 7 6.1835% 16 17 7.3572% 26 27 7.0357%

7 8 6.4273% 17 18 7.3400% 27 28 7.0064%

8 9 6.6576% 18 19 7.3165% 28 29 6.9801%

9 10 6.8613% 19 20 7.2837% 29 30 6.9550%

Term to

(45)

2. Derivation of forward yield (3/3)



The following chart shows the spot yield and the implied forward

yield.

0,0000% 1,0000% 2,0000% 3,0000% 4,0000% 5,0000% 6,0000% 7,0000% 8,0000%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Yi

e

ld

Term (Years)

Spot Yield

(46)

46



Refresher: Fair Value

—

Assets

—

Liabilities

—

Duration



market data



products:

—

Term (ROP)

(47)

(48)

48

ROP Term Life (1/9)



Product:

• 10 Year Return of Premium Term

• 50% ROP at the end of 10 years

• Surrender Value from 3rd _{Policy Year onwards}

• Non-participating

• 100% of Sum Assured on death

(49)

49

ROP Term Life (2/9)



Projection:

• Including all benefits and future cashflows:

premium, expenses, commission, death, surrender, maturity

• Projection Assumptions

• Age: 40 Male

• Premium: 100

• SA: 20,000

• Surrender: 37% / 22% / 12% / 11% ...

• Mortality: TMI2011 Male

• Investment: 7.5%

• Expenses: acquisition 20% / maintenance 2%

• Commission: acquisition 25% / renewal 5% (renewal also in Year 1)

• Reserving Assumptions:

• Margin for adverse deviation (Mfad) on Mortality: 100% -> 200% of Projection Assumption

• Mfad on Surrender: -50% -> 50% of Projection Assumption (negative Mfad)

• Mfad on Expense: 50% -> 150% of Projection Assumption

(50)

50

ROP Term Life

–

Reserving Loop (3/9)

 The following table provides a summary of the reserving / liabilities

cashflows using the example from the previous slide:

Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Premiums 8.33 80.16 75.07 67.81 63.56 59.57 55.80 52.23 48.85 47.14 46.73

Claims -5.10 -49.06 -52.55 -53.16 -55.68 -58.62 -62.27 -66.44 -70.93 -78.07 -88.04

Surrender 0.00 0.00 0.00 -0.52 -1.39 -1.96 -2.28 -2.44 -2.26 0.00 0.00

Maturity 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -232.47

Commission -25.42 -4.01 -3.75 -3.39 -3.18 -2.98 -2.79 -2.61 -2.44 -2.36 -2.34

Expenses -45.25 -2.40 -2.25 -2.03 -1.91 -1.79 -1.67 -1.57 -1.47 -1.41 -1.40

Total -67.43 24.69 16.52 8.71 1.40 -5.77 -13.22 -20.82 -28.25 -34.70 -277.52

(51)

-300.00 -250.00 -200.00 -150.00 -100.00 -50.00 0.00 50.00

Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Valuation Net Cashflow

Net Cashflows

ROP Term Life

–

 The following charts show the projection of net reserving / liabilities

cashflows using the figures from previous slide: Acquisition

Costs

(52)

52

ROP Term Life

–

Projection (5/9)

 The following charts show the projection of sum assured, reserves, surrender value and premium. -5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 -50 100 150 200 250 300

Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9Year 10 Projected Inforce

Surrender Value (In Force) (LHS) Statutory Liability (LHS)

Annual Premium (LHS)

(53)

ROP Term Life

–

P&L (6/9)

 The following table provides a summary of the Projection profit and loss using reserve information from previous slide

Year 1 2 3 4 5 6 7 8 9 10

Premium 78.63 56.51 46.29 40.91 36.17 31.98 28.26 24.97 23.52 23.41

Investment Income 12.86 12.46 12.56 12.74 12.60 12.18 11.51 10.61 9.86 9.09

Claims 24.06 19.78 18.14 17.92 17.80 17.84 17.97 18.12 19.47 22.06

Surrenders 0.00 0.00 0.70 1.79 2.37 2.61 2.63 2.32 0.00 0.00

Maturities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 116.77

Change in reserve 167.16 1.15 4.51 0.45 -3.73 -7.45 -10.74 -12.85 -8.02 -130.49

Expenses Initial 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Renewal 1.57 1.13 0.93 0.82 0.72 0.64 0.57 0.50 0.47 0.47

Comm Initial 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Renewal 3.93 2.83 2.31 2.05 1.81 1.60 1.41 1.25 1.18 1.17

(54)

54

ROP Term Life

–

P&L Items (7/9)

 Projection of items in the Profit and Loss Statement

(200.00) (150.00) (100.00) (50.00) -50.00 100.00 150.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Projected Reported Results

Comm

Expenses

Change in reserve

Surrenders & Maturities

Claims

Bonus

Investment Income

(55)

ROP Term Life

–

Net Earnings (8/9)

 The following charts show the projection of profit

(200.00) (150.00) (100.00) (50.00) -50.00 100.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Net Earnings

Net Cashflow

Statutory Profit

(56)

56

ROP Term Life

–

Net Earnings (No Pad) (9/9)

 The following chart showing the projection of key indicators assuming

projection assumptions equal to reserving assumptions – notice all profit is realized in Year 1.

(120.00) (100.00) (80.00) (60.00) (40.00) (20.00) -20.00 40.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Net Earnings

Net Cashflow

Statutory Profit

(57)



Refresher: Fair Value

—

Assets

—

Liabilities

—

Duration



market data



policies:

—

Term (ROP)

—

(58)

58

Participating(1/9)



Product:

• 10 Year Return of Premium Term

• 50% ROP at the end of 10 years

• Surrender Value from 3rd _{Policy Year onwards}

• Participating - Interest Bonus only based on NLP Reserve with pricing assumption of 6.5%

• 100% of Sum Assured on death

(59)

59

Participating (2/9)



Projection:

• Including all benefits and future cashflows:

premium, expenses, commission, death, surrender, maturity

• Projection Assumptions • Age: 40 Male

• Premium: 100

• SA: 20,000

• Surrender: 37% / 22% / 12% / 11% ...

• Mortality: TMI2011 Male

• Investment: 7.5%

• Expenses: acquisition 20% / maintenance 2%

• Commission: acquisition 25% / renewal 5% (renewal also in Year 1)

• Bonus depending on the Investment Return

• Reserving Assumptions:

• Pfad on Mortality: 100% -> 200% of Projection Assumption

• Pfad on Surrender: -50% -> 50% of Projection Assumption (negative Mfad)

• Pfad on Expense: 50% -> 150% of Projection Assumption

(60)

60

Participating

–

 The following table provides a summary of the reserving / liabilities

cashflows using the example from the previous slide:

Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Premiums 8.33 80.16 75.07 67.81 63.56 59.57 55.80 52.23 48.85 47.14 46.73

Bonus 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.35 -0.84

Claims -5.10 -49.06 -52.55 -53.16 -55.68 -58.62 -62.27 -66.44 -70.93 -78.07 -88.04

Surrender 0.00 0.00 0.00 -0.52 -1.39 -1.96 -2.28 -2.44 -2.26 0.00 0.00

Maturity 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -232.47

Commission -25.42 -4.01 -3.75 -3.39 -3.18 -2.98 -2.79 -2.61 -2.44 -2.36 -2.34

Expenses -45.25 -2.40 -2.25 -2.03 -1.91 -1.79 -1.67 -1.57 -1.47 -1.41 -1.40

Total -67.43 24.69 16.52 8.71 1.40 -5.77 -13.22 -20.82 -28.25 -35.05 -278.36

(61)

-300.00 -250.00 -200.00 -150.00 -100.00 -50.00 0.00 50.00

Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Valuation Net Cashflow

Net Cashflows

Participating

–

 The following charts show the projection of net reserving / liabilities

cashflows using the figures from previous slide: Acquisition

Costs

(62)

62

Participating

–

Projection (5/9)

 The following charts show the projection of sum assured, reserves, surrender value and premium. -5,000.00 10,000.00 15,000.00 20,000.00 25,000.00 -50 100 150 200 250 300

Initial Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9Year 10 Projected Inforce

Surrender Value (In Force) (LHS) Statutory Liability (LHS)

Annual Premium (LHS)

(63)

Participating

–

P&L (6/9)

 The following table provides a summary of the Projection profit and loss using reserve information from the previous slide

Year 1 2 3 4 5 6 7 8 9 10

Premium 78.63 56.51 46.29 40.91 36.17 31.98 28.26 24.97 23.52 23.41

Investment Income 12.91 12.50 12.60 12.78 12.64 12.22 11.54 10.65 9.90 9.11

Bonus 0.37 0.58 0.77 0.90 0.99 1.03 1.04 1.03 1.11 1.17

Claims 24.06 19.78 18.14 17.92 17.80 17.84 17.97 18.12 19.47 22.06

Surrenders 0.00 0.00 0.70 1.79 2.37 2.61 2.63 2.32 0.00 0.00

Maturities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 116.77

Change in reserve 167.73 1.11 4.50 0.45 -3.73 -7.45 -10.74 -12.85 -8.16 -130.88

Expenses Initial 30.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Renewal 1.57 1.13 0.93 0.82 0.72 0.64 0.57 0.50 0.47 0.47

Comm Initial 25.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

(64)

64

Participating

–

P&L Items (7/9)

 Projection of items in the Profit and Loss Statement

(200.00) (150.00) (100.00) (50.00) -50.00 100.00 150.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Reported Results

Comm

Expenses

Change in reserve

Surrenders & Maturities

Claims

Bonus

Investment Income

(65)

Participating

–

Net Earnings (8/9)

 The following charts show the projection of profit

(200.00) (150.00) (100.00) (50.00) -50.00 100.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Net Earnings

Net Cashflow

Statutory Profit

(66)

66

Participating

–

Net Earnings (No Pad) (9/9)

 The following chart showing the projection of key indicators assuming

projection assumptions equal to reserving assumptions – notice all profit is realized in Year 1.

(120.00) (100.00) (80.00) (60.00) (40.00) (20.00) -20.00 40.00 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Projected Net Earnings

Net Cashflow

Statutory Profit

(67)

(68)

68