Re: [lmi] Question about "Numeric summary" logic

[Greg Chicares]

On 2017-07-29 12:39, Vadim Zeitlin wrote:
> On Fri, 28 Jul 2017 23:59:16 +0000 Greg Chicares <address@hidden> wrote:
> 
> GC> ...so let's just follow the regulation:
> GC>   http://www.naic.org/documents/committees_lhatf_582.pdf
> GC> which says, in relevant part (C)(1):
> GC> 
> GC> | This summary shall be shown for at least policy years five (5),
> GC> | ten (10) and twenty (20) and at age 70, if applicable ...
> 
>  Thanks, this is much more clear.

When the text of an insurance regulation is clearer than the code, the code
must be poor indeed.

> But I can't help noticing that it says
> "at least" and the current code seems to quite intentionally show it for
> the year 30 too (if not lapsed, of course). Should we keep 30 or not?

Hmmm...I had never noticed that. Let's drop it.

> GC> Here, "if applicable" means if the row-index year in {5,10,20,age_70}
> GC> above precedes the 'lapse year' [0] for the given output column, i.e.:
> GC>   scalars/LapseYear_Guaranteed
> GC>   scalars/LapseYear_Midpoint
> GC>   scalars/LapseYear_Current
> 
>  I'm not sure if understanding this is really going to help me here, but I
> have to admit that I have only a very vague idea of what do the
> "guaranteed", "midpoint" and "current" suffixes mean (without speaking of
> their "full", "zero" and "half" variants). If it's not too much trouble,
> could you please explain it?

So-called "universal" life insurance (the variety lmi is designed to support)
is based on the central concept of an "account value". Premiums are "flexible"
increments to your account: you pay whatever you like, whenever you like.
Monthly decrements represent mortality and expense costs. Monthly interest
increments represent investment earnings.

Premiums are under the customer's control, but insurance companies can adjust
the mortality, expense, and interest parameters in the future, to reflect
emerging experience. Each policy specifies guaranteed maximum mortality and
expense charges and minimum interest rates.

An illustration shows the account value (and other data) for each future year
on various "bases". "Guaranteed" columns show the trajectory under guaranteed
interest, mortality, and expense assumptions. "Current" columns reflect the
current basis: i.e., the parameters actually in use today (never less
favorable than guaranteed). The "Midpoint" columns use parameters halfway
between guaranteed and current.

Various other "bases" are also illustrated in various circumstances. Some
policies' account values are commingled in a single investment pool, with
interest increments based on aggregate investment earnings; these "general
account" policies have a guaranteed minimum interest rate that is always
nonnegative, and are regulated by the fifty US states. The applicable
regulation is the "illustration reg", and 'illustration_reg.xsl' follows the
rules that the states have established.

"Separate account" policies, OTOH, offer a choice of investments--e.g., you
might put half your money in government bonds and half in the stocks of large
corporations--which may actually have negative returns. An illustration with
a negative 100% interest rate would be uninteresting and brief, so we have
"Zero" columns to show what happens at an interest rate of zero. Separate-
account (also known as "variable") policies are principally regulated by the
federal government through "FINRA", which has its own rules for illustrations,
embodied in 'nasd.xsl' (historically named after "NASD", which regulated this
business before "FINRA" existed).

What's the difference between "Half" and "Midpoint"? Separate-account policies
have no guaranteed interest rate, and they don't really have a current rate
either--a stock or bond has a current price, but no current growth rate--so
an input "Hypothetical" rate is shown, and "Half" is halfway between "Zero"
and "Hypothetical". (In practice, "Half" is no longer used because of a
regulatory change.)

I won't mention variable policies that are exempt from certain FINRA rules
due to "Regulation D", or why 'reg_d_individual.xsl' and 'reg_d_group.xsl'
are distinct.

Thus, for general- and separate- account policies respectively we have
these two sub-bases:
  mce_gen_basis: {"Current", "Guaranteed", "Midpoint"}
  mce_sep_basis: {"Hypothetical", "Zero", "Half of hypothetical"}
each of cardinality three, which combine mystically to form the seven
combinations in 'mce_run_basis', of which five are actually used. Surely
this {2,3,5,7} pattern resulting from interference between federal and
state regulation must appeal to the Pythagorean in you.