Category Archives: Research

The benefits of Solvency II unit matching

Solvency II presents an opportunity for insurers with significant blocks of unit-linked business to revise their investment strategy in a way which could provide a significant increase in available liquidity and a reduction in market risk. This is achieved using ‘Solvency II unit matching’ – the process of more closely aligning the insurer’s holding of unit-linked investment funds with the unit-linked part of the Technical Provisions.

This report by Milliman consultants describes the approach and provides an overview of the theory underlying Solvency II unit matching. Based on insight from implementation experience, the report also highlights the primary benefits of the approach and considers the potential downsides and key implementation considerations.

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 percentage 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 percentage 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.

ERM best practices and considerations for Asian insurers

A strong risk management function within an insurance company allows threats to be managed and opportunities to be captured across every unit and level of the enterprise. Taking a holistic approach to risk enables organisations to optimally prioritise responses and allocate resources to manage risk exposures. It can also help identify significant risks that may have been overlooked through traditional compliance risk management practices.

Developing a risk management framework is an ongoing process that involves strategy and objective setting, risk identification, risk assessment, risk monitoring and risk incidence procedures. A well-defined framework addresses such items as the interaction of the executive risk management committee with the staff who are identifying risks, the criteria for measuring the likelihood and severity of risks and the design of questionnaires, workshops and other methods of identifying risks. With such a risk management programme in place, a company can improve the quality of internal and external customer service, protect its financial and human capital resources and safeguard the organisation’s reputation.

In this report, Milliman’s Shoaib Hussain, Pingni Eng, and Jessica Pang examine risk management best practices from their discussions with participants, global regulatory developments, and global Milliman perspectives. The authors also discuss key challenges and areas of focus for the development and evolution of risk management in Asia.

New Milliman survey reveals 33 out of 40 companies use or plan to use accelerated underwriting in term life insurance

Milliman recently released the results of a new broad-based survey on term life insurance, capturing historical data for key industry competitors as well as company perspectives on a range of issues pertaining to these products into the future. The Term Life Insurance Issues report is based on a survey of 40 term insurance companies. It includes detailed information on underwriting trends and other product and actuarial issues such as sales from calendar years 2013 to 2016, profit measures, target surplus, reserves, risk management, product design, compensation, and pricing.

Key findings of the study include:

• The bulk of term sales are non-return of premium (ROP) term (96% of total term sales). This percentage was fairly stable over the survey period.
• The predominant profit measure relative to the pricing of new term products is an after-tax, after-capital statutory return on investment/internal rate of return (ROI/IRR). The average ROI/IRR target reported by survey participants was 8.9% for ROP term products and 9.9% for non-ROP term.
• Of the survey participants planning to implement principle-based reserves, 20 are planning implementations spread over the allowed three-year phase-in period. Similarly, 14 participants plan to implement the 2017 Commissioner’s Standard Ordinary (CSO) mortality table over the three-year period allowed. Twelve participants intended to implement the 2017 CSO in calendar year 2017.
• Currently, 17 of the 40 survey participants use accelerated underwriting programs for term life insurance, with an additional 16 participants planning to implement such programs.
• Scoring models are being used by 18 of the 40 participants to underwrite their term policies: nine use purely external scoring models, five additional participants use purely internal scoring models, and the remaining four use both internal and external models. The majority (13) of these participants are using scoring models with their accelerated underwriting programs, with the remaining five using them with other underwriting approaches.

“Carriers are currently dealing with major regulatory actions, and emerging innovations in life underwriting. These recent changes are disrupting the term life insurance market in ways that haven’t been seen for some time,” says Sue Saip, consultant in Milliman’s Chicago office.

The 295 page “Term life insurance issues – Detailed Report” is available for purchase by visiting the Milliman website or by calling Gina Ritchie at (312) 499-5605. Participating companies receive a complimentary copy of the detailed report, as well as individual company responses reported on an anonymous basis.

Top 15 global articles and reports for 2017

Milliman’s most viewed articles worldwide in 2017 covered topics related to healthcare in the United States, the rise of InsurTech, and the challenges of IFRS 17. (For summaries and links to all of the articles, click here.)

Here is the list of the top global articles and reports for the year:

15. MACRA: Key Considerations for health plans, By Colleen Norris and Mary van der Heijde

14. Multiemployer Pension Funding Study, By Kevin Campe

13. The American Health Care Act, By Jason Karcher

12. MACRA and Medicare Advantage plans: Synergies and potential opportunities, By Christopher Kunkel, Drew Osborne, Lynn Dong, Michael Polakowski, Noah Champagne, and Charlie Mills

11. Effective employee communication: The benefits of best practices, By Jessica Gonchar, Heidi tenBroek, and Sharon Stocker

10. Building blocks: Block grants, per capita caps, and Medicaid reform, By Justin Birrell, Jennifer Gerstorff, Nicholas Johnson, and Brad Armstrong

9. Overview and practical considerations of the new insurance contract standard: IFRS 17, By Gillian Tucker and Andrew Kay

8. InsurTech: Innovation in the P&C insurance space, By Thomas Ryan

7. The employer stop-loss insurance marketplace since the Affordable Care Act, By Mehb Khoja

6. 2017 Public Pension Funding Study, By Rebecca Sielman

5. Summary of individual market enrollment and Affordable Care Act subsidies, By Paul Houchens, Jason Clarkson, and Zachary Fohl

4. Impact of the transition from RAPS to EDS on Medicare Advantage risk scores, By Deana Bell, David Koenig, and Charlie Mills

3. Corporate Pension Funding Study, By Zorast Wadia, Alan Perry, and Charles Clark

2. Pension Funding Index, By Zorast Wadia and Charles Clark

1. Milliman Medical Index, By Christopher Girod, Susan Hart, and Scott Weltz

Asian life insurance growth story continues boosting embedded value and new business values

Milliman has released its latest report, 2017 Mid-Year Embedded Value Results (excl. Japan), which summarises mid-year 2017 embedded value (EV) results disclosed by Asian insurers in eight key countries. The report examines the results at a company and country level and supplements the 2016 Embedded Value Results: Asia (excl. Japan) report released in August 2017. It also includes an update of the India 2016 full-year results, not available earlier due to the market’s March financial year-end. The findings highlight an overall increase in growth of EV, increase in value of new business (VNB) and improvement in new business margins.

‘As expected, positive performances by Asian equity markets and improving yields have led to an increase in the EV of life insurers within the region,’ said Milliman principal and consulting actuary Paul Sinnott. ‘These favourable economic conditions, combined with refined product strategies and improved distribution channel productivity, continue to drive growth in life insurance premiums, margins and the overall business in Asia.’

Key findings from the report include:

• Overall, insurers have reported positive gains in their 2017 mid-year embedded values over their 2016 mid-year values, with many companies showing single-digit EV growth but some posting larger gains in Hong Kong and mainland China.
• Hong Kong and mainland China insurers continued to report significant increases in VNB in the first half of 2017 compared to the first half of 2016, with over 50% increases in VNB for several companies, primarily driven by strong new business sales.
• Nearly all operating entities reported an increase in their new business margins between the first half of 2016 and the first half of 2017, with single- or double-digit increases in new business margins for many.
• As initial public offering (IPO) activity among insurers continues in India, companies are adopting the market-consistent Indian Embedded Value methodology (which is prescribed for IPO disclosures).

A copy of the report is available for download here.