Category Archives: Research

Proposed Changes to US GAAP: An impact analysis of proposed targeted improvements

The Financial Accounting Standards Board (FASB) has proposed significant changes to accounting standards for long duration insurance contracts to address several stakeholder concerns. In this report, Milliman consultants discuss the impact of the FASB’s proposed changes on earnings and equity for several illustrative product types. They also examine the industry’s preparedness to adopt the new guidance.

Mixed outlook for participating business across Asia

Milliman has released the findings of a study analysing and comparing participating (par) business across seven Asian insurance markets notably Singapore, India, Malaysia, Hong Kong, China, Indonesia and Sri Lanka. The report collates in-depth information not otherwise available and provides insight from survey results about par business in Asia.

“Par products have been a core insurance offering for many decades in many markets across Asia Pacific and in Singapore, Hong Kong and India they remain a cornerstone of the industry” said Richard Holloway, managing director for Milliman’s South East Asia and India life consulting practice. “However, increased regulatory scrutiny of par business in countries such as Malaysia and the onset of risk based capital solvency regimes in most markets may lead to a gradual decline in the popularity of such products. This report unlocks key considerations for companies offering par products across the region, highlighting differences in performance, investment approach, and governance of par across the seven markets.”

The “Milliman Participating Business in Asia” report includes:

• A regional view of common themes and differences between the seven selected markets
• Detailed country commentary on par business performance, regulatory environments and key challenges
• Results of our survey providing qualitative insights into par business in these countries
• Analysis of the governance frameworks in place and roles of policyholder advocates

To download the report, click here.

Opportunity exists for private providers in Asia to enter retirement income market

Milliman has released comprehensive new research analyzing the current and future state of the retirement income market in the Asia-Pacific region. The report is based on a survey of over 100 insurance companies and financial institutions across eight countries. The results, along with case studies and in-depth analysis, provide insight into the economic and regulatory factors most affecting Asian retirement income markets, including consumer demand, product development, and opportunities for growth in the industry.

“Across Asia-Pacific, there is the potential for private market providers to complement and fill gaps that exist from government-sponsored retirement systems and employer-sponsored pension arrangements,” said Richard Holloway, managing director for Milliman’s South East Asia and India life consulting practice. “With this report we’re able to gain valuable insight into opportunities that may exist, on a country-by-country basis, and offer perspectives on ways to capitalize.”

“Technology advancements have now made it possible for financial institutions to provide consumers with tailored investment strategies and product solutions to achieve their goals in retirement. The development of robo-advice has begun to gain traction in the superannuation industry in Australia, and we expect the same to occur in Asia in the near future,” said Milliman Australia practice leader Wade Matterson.

Key findings from the report include:

• The vast majority of respondents feel their national retirement systems’ provisions are inadequate—even those traditionally considered to have more advanced systems such as Singapore and Australia.
• Regarding the most important features in a retirement income product, respondents feel consumers would value some type of guarantee, either income or capital protection, with simplicity being a consistent third across most countries.
• When it comes to financial advice, over 60% of participants felt financial advice was needed but 63% cited cost as the primary impediment for consumers.

Interested parties may obtain a copy of the Milliman study here.

New developments in the computation of mortality rates: An actuary’s bread and butter

The computation of mortality rates has traditionally been the bread and butter of actuaries. The first mathematicians to venture into the actuarial field most likely spent their days analysing mortality rates and conducting life valuations. Nowadays, the work of actuaries is much more varied—which is a welcome development for most—but are we sometimes neglecting this core skill?

Milliman researchers in Paris certainly aren’t and their new research, hot off the press, published on 22 February 2017, represents a significant development in mortality and longevity risk modelling. It is vital reading for anyone working in this sphere.

My colleagues have developed a robust statistical methodology to correct the implicit inaccuracies of national mortality tables which are used widely in sophisticated mortality and longevity risk modelling. The results are striking.

Here I take a closer look at the relevance of these national mortality tables, the problems with them, and the corrections available in order to enhance mortality and longevity risk models. I will touch on the key technical points behind these developments from an Irish/UK perspective, leaving the rigorous mathematical explanations to the underlying research publications—the 2017 publication can be found here and the 2016 publication can be found here.

The use of national mortality tables
In Ireland and the UK, to set basic mortality assumptions in our pricing and reserving work, we tend to use insured lives mortality tables, such as the Continuous Mortality Investigation (CMI) tables. However, national mortality tables based on the population as a whole are also used extensively in mortality and longevity risk modelling, where a greater quantity of data is required.

National mortality tables are used to calibrate stochastic mortality models, to derive mortality improvement assumptions, in sophisticated mortality risk management models, in Solvency II internal models, in pricing mortality/longevity securitisations, and in bulk annuity transactions.

Bulk annuity transactions are popular in the UK market, with a number of large deals executed during 2016, including the ICI Pension Fund’s two buy-in deals completed in the wake of Brexit, totalling £1.7 billion. Legal & General completed a £2.5 billion buyout agreement with the TRW Pension Scheme in 2014.

Longevity hedging (in particular, use of longevity swaps) is also an attractive approach to the de-risking of pension schemes, and would equally require the use of national mortality tables. Transactions range from the large-scale £5 billion Aviva longevity swap in 2014 to the recent, more modest, £300 million longevity swap completed between Zurich and SCOR in January 2017.

While the use of internal models to calculate mortality and longevity risk capital requirements under Solvency II is not prevalent in the Irish market, which is due to the size of companies and the amount of risk retained, it is likely that reinsurers are looking at such models. In the UK, larger companies may opt to use internal models if they are retaining large exposures.

Indeed, national mortality tables also typically inform mortality improvement assumptions for all companies, as the analysis of improvements requires large volumes of data. Therefore, even companies that do not use sophisticated mortality and longevity risk modelling techniques are implicitly impacted by the new developments in relation to the construction of national mortality tables.

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A harmonized EIOPA Recovery and Resolution Framework discussion paper

king-eoinOn December 2, the European Insurance and Occupational Pensions Authority (EIOPA) issued a discussion paper on “Potential Harmonisation of Recovery and Resolution Frameworks for Insurers.” The paper sets out a number of considerations for the development of a harmonized European framework in the recovery and resolution planning space. It is open to comments from stakeholders until February 28, 2017.

Recovery and resolution planning is a very topical subject at present and there are numerous examples of requirements for financial services companies and regulatory authorities to develop recovery and resolution plans and frameworks. For example, larger financial institutions that are classified as globally systemically important financial institutions (G-SIFIs) and globally systemically important insurers (G-SIIs) are required to undertake recovery and resolution planning under the Financial Stability Board’s “Key Attributes of Effective Resolution Regimes for Financial Institutions” and similar requirements adopted by the International Association of Insurance Supervisors. This is also an area of focus for European regulators. In Ireland, for example, Sylvia Cronin, Director of Insurance Supervision at the Central Bank, noted at the European Insurance Forum in March that recovery and resolution for insurers is an area of particular interest for the Central Bank.

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Top 15 U.S. articles and reports for 2016


In 2016, Milliman consultants wrote articles and worked on studies covering a range of practices and areas. Healthcare was a hot topic again this year, and topics included value-based payments, risk adjustment, and the Medicaid managed care rule. Other articles—about student loan debt and daily fantasy sports—were also popular. Here’s a preview of the top 15 U.S. articles and reports for the year.

15. Financial analysis of ACA health plan issuers, By Daniel J. Perlman and David M. Liner

14. Are you ready for the new world of value-based reimbursement?, By Marla Pantano

13. Encounter data standards: Implications for state Medicaid agencies and managed care entities from final Medicaid managed care rule, By Jeremy Cunningham, Maureen Tressel Lewis, and Paul R. Houchens

12. The elusive nature of private exchanges, By Mike Gaal

11. Money market update for 2016: The rule that you should be aware of, By Jeffrey T. Marzinsky

For a summary and link to all of the articles, click here.