EIOPA’s Insurance Stress Test Exercise 2018

In May, the European Insurance and Occupational Pensions Authority (EIOPA) launched its fourth stress test exercise for the 42 largest insurance groups in the European insurance sector. The 2018 EIOPA stress test exercise aims to assess the vulnerability of the EU insurance sector and comprises three specific hypothetical adverse scenarios which are informed by current market conditions, the risk climate, and their potential impact on the insurance sector.

This paper by Ian Humphries and Fred Vosvenieks looks into the three stress scenarios, the calculation methodology requirements, reporting timeframes, and disclosure requirements, whilst highlighting why non-participating insurers may find the exercise and the subsequent results of interest.

Annual Milliman survey reveals gradual shifting from full underwriting of UL/IUL products to simplified issue and accelerated underwriting approaches

Milliman today announced the results of its annual comprehensive study of universal life (UL) and indexed universal life (IUL) issues, which for the first time includes the reporting of sales by underwriting approach. The 11th annual Milliman study, “Universal Life and Indexed Universal Life Issues”, focuses on current topics relative to universal life with secondary guarantees (ULSG), cash accumulation UL, current assumption UL, and the corresponding indexed UL (IUL) versions.

This year’s report found that, between January 1, 2017 and September 30, 2017, the distribution of UL sales (on a premium basis) by underwriting approach was 29.8% simplified issue, 1.1% accelerated underwritten, and 69.2% fully underwritten. Comparing calendar year 2016 to the first three quarters of 2017, there was a 2.5% shift from fully underwritten sales to simplified issue and accelerated underwritten sales.

Similarly, between January 1, 2017 and September 30, 2017, the distribution of IUL sales by underwriting approach was 2.6% simplified issue, 16.8% accelerated underwritten, and 80.6% fully underwritten. Comparing sales in calendar year 2016 to the first three quarters of 2017, there was a 16.2% shift from fully underwritten sales to accelerated underwritten sales.

The life insurance industry has been moving away from full underwriting of life products to simplified approaches with fewer or different requirements and more timely responses, while still considering the implications of mortality cost. Nineteen of the 29 respondents reported using more than one underwriting approach. Of the 29, simplified issue underwriting is being used by nine participants, accelerated underwriting by 12 participants, and full underwriting by 28 participants. Eleven additional participants reported they will or may implement accelerated underwriting programs in the future.

“Carriers are focusing on improving the life underwriting process with the use of new technology, such as predictive analytics, the reduction of underwriting costs, and the shortening of the approval process. These improvements are possible when using an accelerated underwriting approach, which likely explains some of the shift we’re seeing,” says Sue Saip, consultant in Milliman’s Chicago office.

In addition to underwriting information, the survey also indicates that sales of chronic illness riders and long-term care riders on UL/IUL policies continue to grow. During the first three quarters of 2017, sales of chronic illness riders as a percent of total sales were 8.7% for UL products and 38.5% for IUL products. During the same period, sales of policies with long-term care (LTC) riders as a percent of total sales (by premium) were 33.2% for UL products and 10.9% for IUL products. Within 24 months, 83% of survey participants possibly will market either an LTC or chronic illness rider.

The 404 page “Universal Life and Indexed Universal Life Issues – Detailed Report” also includes detailed information on product and actuarial issues, such as sales, profit measures, target surplus, reserves, risk management, underwriting, product design, compensation, pricing, and illustrations.

The report is available for purchase here or by calling Gina Ritchie at (312) 499-5605.

How will U.S. tax reform affect captive insurers?

Tax reform in the United States is influencing the economic benefits previously enjoyed by some captive insurance owners. Two reform items specifically affect captives: the new marginal rate, which was decreased from 35% to 21%, and the change in the benchmark interest rates to be used for discounting loss reserves. In this article, Milliman’s Joel Chansky and Mike Meehan provide analyses demonstrating the effects that these new tax items have on both large and small captive insurers.

FASB approves targeted improvements

The Financial Accounting Standards Board (FASB) has approved the issuance of a final Accounting Standards Update (ASU) of targeted changes to the accounting for long duration insurance contracts. The targeted improvements will be effective in 2021 with early adoption permitted. This paper by Milliman consultant William Hines outlines the decisions and discussions at the June 6, 2018, FASB meeting.

Milliman expands Middle East operations, opening new office in Israel

Milliman has announced that the firm is opening a new office in Tel Aviv, expanding its operations in the Middle East. The office will offer the full gamut of insurance and actuarial consulting services. Benny Gabbay, a leading figure in the Israeli insurance industry, and Daniel Sharon, until recently chief actuary of Phoenix Insurance Ltd., a leading Israeli insurer, will oversee the new office in Israel. Each brings a deep knowledge of the Israeli insurance market and over 20 years of industry experience to the firm.

Steve White, Milliman’s president and CEO, says, “Milliman continues to expand into new regions amid increasing demand for the firm’s services across the Mideast and the world. Israel is recognized as a leading force in insurance innovation and we believe Milliman’s creative culture is well-suited to the Israeli environment.”

Nick Dumbreck, a principal with Milliman in London, says: “Israel has a growing insurance market which faces a number of challenges. The Milliman Israel office will bring independent consulting together with our global quality standards to help clients to meet these challenges.”

Benny Gabbay says, “Developments in the insurance and actuarial industry, particularly in areas of regulation (IFRS 17, Solvency II) and insurtech, represent the ideal timing for Milliman’s expansion to Israel. We have an excellent team and I am confident we will make a valuable contribution both to the Israeli insurance industry as well as to the global Milliman enterprise.”

Daniel Sharon says, “We are thrilled about opening the Israeli Milliman office. We have received a warm welcome from the industry and it’s now up to us to live up to the Milliman brand. I’m particularly excited about delivering exceptional service, which Milliman is famous for. Not just answering the question at hand—but also raising and addressing the questions that haven’t been asked.”

EIOPA’s 2018 stress tests: Cyber risk questionnaire

As part of its fourth insurance stress testing exercise launched on 14 May 2018, the European Insurance and Occupational Pensions Authority (EIOPA) has included for the first time a ‘cyber questionnaire’ for its target group of participants to complete. This briefing note by Milliman’s Claire Booth and Jonathan Lim highlights the information firms have been asked to disclose. It also explains how firms outside of EIOPA’s target group should consider using the questionnaire.