III IC-92 cheat sheet

Product development is a cycle: idea generation, feasibility, pricing and design, filing, launch, monitoring, and revision; actuarial input is required at every stage, not only at pricing.

Gross premium = expected benefit cost + expected expense cost + risk/profit load + reserve funding margin; each component must be separately quantified so that sensitivity to assumptions is visible.

The pricing interest rate must be no greater than the valuation rate for a conservative reserve; a lower pricing rate raises premium and generally increases the reserve strain at issue.

Expected claim cost per policy = sum over durations of (probability of decrement in that duration) x (expected benefit amount), discounted to issue; use the same decrement model for pricing and reserving unless a documented reason exists.

Expense assumptions must distinguish per-policy fixed costs from premium-related and per-unit costs; fixed per-policy costs create negative economies of scale and make small policies unprofitable at standard premium.

Profit is measured by a profitability metric such as internal rate of return, break-even year, or present value of profits; the metric and the hurdle rate must be set before pricing, not after results are known.

Lapse and mortality/annuitant assumptions are the highest-leverage assumptions for long-duration products; a lapse-supported product is one whose profit depends on a minimum lapse rate, and that dependency must be disclosed.

Sensitivity and scenario testing: reprice under adverse mortality, lapse, expense, and interest scenarios; a product whose profit is eliminated by a modest adverse shift is not adequately loaded.

Regulatory constraints on product design include reserve minimums, capital requirements, nonforfeiture minimums, and illustration rules; the actuarial design must satisfy all of them simultaneously with the profit target.

Feasibility stage output is a quantified business case: expected volume, expected profit per policy, capital required at issue, and break-even volume.

Cash-flow testing at the product level should be on a statutory, GAAP, and economic basis; a product may be profitable on one basis and value-destroying on another.

Guaranteed elements (minimum credited rate, maximum charge, guaranteed annuity conversion) must be priced with the cost of the guarantee, typically via option-pricing or stochastic simulation, not deterministic best estimate.

The actuarial control cycle: define the problem, form assumptions, build the model, communicate results, monitor experience, and feed actual-to-expected results back into assumptions.

Actual-to-expected analysis requires credibility weighting; a single year of experience rarely justifies a full assumption change, so use a credibility standard (for example limited fluctuation) before revising.

Premium rate structure decisions include banding by face amount, smoker/nonsmoker, and issue age; each banding dimension adds underwriting or administrative cost that must be recovered in the pricing.

Underwriting class selection affects both mortality and anti-selection cost; more classes reduce adverse selection but increase the risk of misclassification and the expense of the underwriting process.

Product design trade-offs: higher guarantees increase reserve and capital strain at issue; front-loaded charges improve early profitability but raise lapse and regulatory concerns.

Documentation of pricing assumptions must state the source, the rationale, and the margin for adverse deviation, so that a later reviewer can reconstruct the decision.

Profit margin can be expressed per policy, as a percentage of premium, as a return on capital, or as a present value of distributable earnings; the choice changes which design scores best, so the metric must be fixed in advance.

The reserve basis and the pricing basis should be reconciled; if the pricing basis is materially more optimistic than the valuation basis, the difference is a source of future strain that must be funded by surplus.

New business strain = acquisition expenses + reserve increase - first-year premium margins; it is a cash cost at issue and drives the capital requirement of the product.

Interest rate risk in product design: products with long-duration guarantees require asset-liability matching; a duration gap between assets and liabilities is itself a priced risk.

Reinsurance is a design lever: quota share reduces new business strain and volatility, while stop-loss or excess cover protects against catastrophic mortality; the cost of reinsurance enters the gross premium.

Distribution channel economics: commission and compensation schedules are a first-year expense that must be recovered over the expected policy lifetime, so lapse assumptions directly determine whether the channel is solvent.

Experience monitoring should be at the level at which assumptions were set (age, sex, duration, band) so that actual-to-expected results can be attributed to a specific assumption.

Filing and approval: the actuarial memorandum must demonstrate that the premium is self-supporting under the valuation basis and that the reserve method complies with the applicable standard.

Break-even year is the first duration in which cumulative discounted profit turns positive; a shorter break-even year reduces the exposure of the product to early lapse.

The pricing model should be built at the policy level with monthly or annual cash flows, then aggregated; aggregate-only models hide timing effects such as the first-year strain.

Assumption margins are not the same as profit load; margins protect against adverse deviation, while profit load is the planned return to the company, and both must appear in the gross premium.

Competitive analysis is an actuarial input: the premium relative to market benchmarks constrains the achievable profit margin, and the design must state which trade-off was chosen.

Guaranteed cash value and nonforfeiture requirements set a floor on the reserve and on the asset share; a design that cannot fund the nonforfeiture minimum at the assumed lapse rate is not viable.

The actuarial control cycle closes with a feedback loop: actual-to-expected results update the assumptions, the updated assumptions reprice the product, and the repriced product re-enters the market.

Model risk: document model limitations, run independent checks on key formulas, and test the model against a simple closed-form case where one exists.

Asset share = accumulated premiums less accumulated expenses and cost of benefits, accumulated at the earned rate; it is the benchmark against which cash values and dividends are tested.

Dividend or credited-rate determination for participating products requires a dividend scale that is supportable by the asset share and by the actual experience of the block.

The contribution principle: experience gains and losses are allocated among policyholders and the company according to a documented and equitable formula.

Product development for a new market requires a separate mortality table and expense basis; using the home-market table without adjustment is a known source of mispricing.

Regulatory review of rates: rate filings must include the actuarial memorandum, the certification of the assumptions, and the demonstration of solvency under the valuation basis.

Capital allocation to a product line should reflect its risk, not only its premium volume; a small line with long guarantees can consume more capital than a large line with short liabilities.

Product revision triggers: adverse actual-to-expected beyond a credibility threshold, a change in the valuation basis, a change in the competitive environment, or a regulatory change.

Expected present value of benefits uses the decrement probabilities and the benefit amounts; for a term product, the benefit is the face amount, for an annuity it is the periodic payment.

The net premium is the premium whose present value equals the present value of benefits; the gross premium adds expenses and profit and is what the policyholder pays.

Reserve at duration t = present value of future benefits minus present value of future net premiums, evaluated on the valuation basis; it is the liability the product must fund.

A product design with a level premium and increasing mortality cost produces a reserve that grows with duration; the early-year reserve increase is part of the new business strain.

For a single-premium product, the reserve at issue is close to the single premium less expense load, so the strain is mostly expense-driven rather than reserve-driven.

For a renewable term product, the renewal premium must reflect the attained-age mortality cost plus expense; a level renewal premium on a renewable term product requires a reserve or a subsidizing margin.

The actuarial memorandum for a product should state the valuation method, the assumptions, the certification, and the sensitivity of the reserve to the key assumptions.

Pricing for a block, not a policy: expected profit should be evaluated on the expected distribution of policies, so that the cost of a few large claims is captured in the risk load.

Risk load can be set by a percentile or ruin-probability criterion rather than by a fixed percentage of expected cost; the criterion must be stated in the pricing documentation.

Lapse assumption interacts with the profit metric: a product priced with a lapse-supported assumption shows higher profit at low lapse and a loss at high lapse, so the sensitivity must be reported alongside the profit.

Expense inflation and fixed-cost allocation should be tested; a product priced with today's unit costs may become unprofitable if per-policy costs grow faster than premium.

The product development team must include actuarial, underwriting, legal, and operations input; a design that ignores operational feasibility will fail at launch.

Post-launch monitoring should compare actual mortality, lapse, expense, and interest to the pricing assumptions at least annually, with results reported to the pricing owner.

A product is adequately priced only if it is profitable under the pricing basis and solvent under the valuation basis; the two tests use different assumptions and must both be passed.

The valuation basis is generally more conservative than the pricing basis; the gap between them is a source of strain that the surplus must absorb at issue.

Guarantee costs should be quantified with a stochastic model calibrated to market-consistent assumptions, not with a single deterministic scenario.

The pricing actuary should document the rationale for each assumption, the source of the data, and the margin for adverse deviation, so the pricing file is auditable.

Product design should be tested against the actual policyholder behavior observed in similar products; using assumed lapse rates that are lower than observed experience overstates profit.

New business volume affects the capital requirement: rapid growth in a product with new business strain consumes surplus, so growth must be funded or constrained.

The actuarial control cycle is iterative: monitor experience, compare to assumptions, revise assumptions, reprice, and repeat; the cycle is the governance framework for product development.

Assumption setting should use company experience where credible and industry tables where not, with a credibility weighting that is documented.

The profit test should include the cost of capital and the cost of guarantees, not only the expected benefit and expense costs.

A product with a front-end load has low early reserves and high early profit, but the load must be disclosed and must not exceed regulatory limits.

The pricing of a product with a cash value should test the cash value against the asset share at each duration to ensure the design is self-supporting.

The actuarial memorandum and the pricing file are the audit trail of the product development process; they must be retained and updated when assumptions change.

Mortality improvement and select periods affect the pricing of long-duration products; using a table without improvement overstates the cost of annuities and understates the cost of life products.

Expense assumptions should be split into acquisition, maintenance, and termination costs, each with its own timing and its own inflation assumption.

The discount rate for profit testing should reflect the cost of capital, not the investment yield on assets; mixing the two overstates the profit.

A product design that relies on a single distribution channel has concentration risk; the pricing should reflect the cost of that concentration.

Regulatory and tax changes are product risks; the pricing file should state which regulatory assumptions were used and when they were last verified.

The final pricing decision should be recorded with the alternatives considered and the reason for the chosen design, so that a later review can reconstruct the trade-off.

The reserve method (net premium, gross premium, or accumulated value) must be appropriate to the product; the choice changes the reserve pattern and the strain at issue.

For a product with a surrender value, the reserve must be at least the surrender value at each duration; otherwise a surrender creates a surplus loss.

The pricing of a product with a guaranteed minimum credited rate should include the cost of the guarantee as an explicit option cost in the gross premium.

The product development process should include a review of the regulatory filing requirements before the design is finalized, so that the design does not need to be changed after filing.

The actuarial assumptions used for pricing should be reviewed by someone other than the pricing actuary; independent review is a control against optimistic assumptions.

The product's profitability should be tested under a range of volumes, because fixed costs per policy fall as volume rises and a product that is unprofitable at low volume may be profitable at scale.

The expected profit of a product is the present value of premiums less benefits, expenses, and taxes, discounted at the hurdle rate, plus the release of reserves and capital over the policy lifetime.

The capital requirement for a product is the amount of surplus that must be held to support the product's risks; it is a cost of the product and must be included in the profit test.

A product with a long guarantee period has a high capital requirement and a long payback period; the pricing should reflect the time value of that capital.

The pricing actuary should test the product against a scenario in which the assumptions are wrong in the direction that hurts most, not only in the direction that is most likely.

The product design should be tested for consistency with the company's risk appetite and with the limits set by the board; a product that exceeds those limits should not be launched without approval.

The actuarial control cycle requires that the assumptions be updated when experience emerges, and that the product be repriced or withdrawn if the experience is materially adverse.

The gross premium reserve is the present value of future benefits and expenses less the present value of future gross premiums; it is generally lower than the net premium reserve for the same product.

The net premium reserve is the present value of future benefits less the present value of future net premiums; it is the minimum reserve under many standards and is independent of the expense load.

The reserve at issue for a level-premium product is typically zero or small; the reserve grows as the mortality cost exceeds the level premium in later durations.

The cash value should be set so that it is less than or equal to the reserve at each duration; a cash value above the reserve creates a surplus loss on surrender.

The pricing of a product with a surrender charge should reflect the fact that the charge reduces the cost of a surrender but is itself a competitive disadvantage.

The product development file should include the model, the assumptions, the results, and the review comments, and should be retained for the period required by the company's record retention policy.

The expected present value of a benefit stream is the sum over durations of the probability of survival to the duration times the benefit amount times the discount factor.

The probability of decrement in a duration is the probability of survival to the start of the duration times the decrement rate for that duration; the product is the probability of the decrement occurring in that duration.

For a product with multiple decrements (death, lapse, surrender), the probabilities must be computed from the multiple-decrement table, not by applying each rate independently to the survival probability.

The discount factor for a cash flow at duration t is (1+i)^-t for annual flows; for monthly flows, use the equivalent monthly rate so that the annual accumulation matches.

The expense load in the gross premium should recover the acquisition expense over the premium-paying period, not only in the first year, unless the product is designed with a front-end load.

The profit test should include the release of the reserve and the release of the capital requirement, because these are cash flows to the company that are not captured by the premium and benefit cash flows alone.

The pricing actuary should set a target profit margin before the design is finalized, so that the design choices are evaluated against a fixed objective rather than adjusted to fit the result.

The product design should be tested for its sensitivity to the lapse rate, because lapse is the assumption most often wrong and the one with the largest effect on long-duration profitability.

The pricing file should record the data source for each assumption, the credibility of that source, and the margin applied, so that the assumption can be defended in a regulatory review.

The product development process should include a post-launch review at a fixed interval (for example, one year) to compare actual experience to the pricing assumptions.

The actuarial memorandum should state the valuation basis, the reserve method, the assumptions, and the certification, and should be updated when any of these changes.

The product's design should be consistent with the company's underwriting and claims processes; a design that requires underwriting the company cannot deliver will produce adverse selection.

The cost of a guarantee is the difference between the value of the guaranteed benefit and the value of the benefit without the guarantee, measured under a market-consistent stochastic model.

The reserve for a product with a guarantee should include the time value of the guarantee, not only the expected cost, because the guarantee is an option that has value even when it is out of the money.

The pricing of a product with a participation feature should include the cost of the participation, which depends on the expected credited rate and on policyholder behavior.

The product development team should include a review of the tax treatment of the product, because tax can change the relative profitability of designs.

The pricing actuary should document the model version and the assumption set used for each pricing run, so that results can be reproduced.

The final product design should be approved by the appropriate governance body, with the actuarial memorandum and the profit test as the supporting documentation.

The expected profit per policy is the present value of the profit cash flows divided by the expected number of policies in force, and it is the metric used to compare designs at the policy level.

The return on capital is the present value of distributable earnings divided by the capital required, and it is the metric used to compare designs that consume different amounts of capital.

The break-even year and the internal rate of return are related: a product with a higher internal rate of return generally has a shorter break-even year, but the two can diverge when the cash flow pattern is unusual.

The profit test should be run on a statutory basis and on an economic basis; a product that is profitable on one basis and not the other requires a documented explanation.

The pricing actuary should test the product under a scenario in which the interest rate is lower than assumed for the entire projection, because a sustained low-rate environment is the most damaging scenario for products with guarantees.

The product design should be reviewed against the company's capital plan; a product that requires more capital than the plan allows must be redesigned or reinsured.

The actuarial control cycle is the governance framework: define the problem, set assumptions, build the model, communicate results, monitor experience, and revise.

The assumption-setting process should use the company's own experience where it is credible and industry data where it is not, with the credibility weighting documented.

The pricing actuary should test the product against the company's risk appetite and against the regulatory constraints before the design is finalized.

The product file should include the pricing model, the assumptions, the results, the sensitivity tests, and the review comments, and should be retained per the record retention policy.

The product development process should include a review of the competitive environment and the distribution channel, because these constrain the achievable premium and the achievable profit.

The product should be monitored after launch, and the assumptions should be updated when experience emerges; the product should be repriced or withdrawn if experience is materially adverse.

The reserve at duration t for a level-premium product is the present value of future benefits less the present value of future net premiums, and it grows as the mortality cost exceeds the level premium.

The cash value should be less than or equal to the reserve at each duration, so that a surrender does not create a surplus loss.

The gross premium should recover the acquisition expense over the premium-paying period unless the product is designed with a front-end load.

The profit test should include the release of the reserve and the release of capital, because these are cash flows to the company.

The product design should be tested for sensitivity to lapse, mortality, expense, and interest, and the results should be reported with the pricing recommendation.

The product file should record the data source, the credibility, and the margin for each assumption, so that the assumption can be defended in a regulatory review.

The expected present value of a benefit stream is the sum over durations of the probability of survival to the duration times the benefit amount times the discount factor.

The probability of decrement in a duration is the probability of survival to the start of the duration times the decrement rate for that duration.

For multiple decrements, the probabilities must be computed from the multiple-decrement table, not by applying each rate independently to the survival probability.

The discount factor for a cash flow at duration t is (1+i)^-t for annual flows; for monthly flows, use the equivalent monthly rate.

The expense load should recover the acquisition expense over the premium-paying period, not only in the first year, unless the product is designed with a front-end load.

The profit test should include the release of the reserve and the release of capital, because these are cash flows to the company.

The pricing actuary should set a target profit margin before the design is finalized, so that design choices are evaluated against a fixed objective.

The product design should be tested for sensitivity to the lapse rate, because lapse is the assumption most often wrong and the one with the largest effect on long-duration profitability.

The pricing file should record the data source, the credibility, and the margin for each assumption, so that the assumption can be defended in a regulatory review.

The product development process should include a post-launch review at a fixed interval to compare actual experience to the pricing assumptions.

The actuarial memorandum should state the valuation basis, the reserve method, the assumptions, and the certification, and should be updated when any of these changes.

The product design should be consistent with the company's underwriting and claims processes, because a design that requires underwriting the company cannot deliver will produce adverse selection.

The cost of a guarantee is the difference between the value of the guaranteed benefit and the value of the benefit without the guarantee, measured under a market-consistent stochastic model.

The reserve for a product with a guarantee should include the time value of the guarantee, not only the expected cost, because the guarantee is an option.

The pricing of a product with a participation feature should include the cost of the participation, which depends on the expected credited rate and on policyholder behavior.

The product development team should include a review of the tax treatment of the product, because tax can change the relative profitability of designs.

The pricing actuary should document the model version and the assumption set used for each pricing run, so that results can be reproduced.

The final product design should be approved by the appropriate governance body, with the actuarial memorandum and the profit test as the supporting documentation.

The expected profit per policy is the present value of the profit cash flows divided by the expected number of policies in force.

The return on capital is the present value of distributable earnings divided by the capital required, and it is used to compare designs that consume different amounts of capital.

The break-even year and the internal rate of return are related, but they can diverge when the cash flow pattern is unusual.

The profit test should be run on a statutory basis and on an economic basis, and any difference should be documented.

The pricing actuary should test the product under a sustained low-interest scenario, because that is the most damaging scenario for products with guarantees.

The product design should be reviewed against the company's capital plan, and a product that requires more capital than the plan allows must be redesigned or reinsured.

The actuarial control cycle is the governance framework: define the problem, set assumptions, build the model, communicate results, monitor experience, and revise.

The assumption-setting process should use company experience where it is credible and industry data where it is not, with the credibility weighting documented.

The pricing actuary should test the product against the company's risk appetite and against the regulatory constraints before the design is finalized.

The product file should include the pricing model, the assumptions, the results, the sensitivity tests, and the review comments.

The product development process should include a review of the competitive environment and the distribution channel, because these constrain the achievable premium and profit.

The product should be monitored after launch, and the assumptions should be updated when experience emerges; the product should be repriced or withdrawn if experience is materially adverse.

The reserve at duration t for a level-premium product is the present value of future benefits less the present value of future net premiums.

The cash value should be less than or equal to the reserve at each duration, so that a surrender does not create a surplus loss.

The gross premium should recover the acquisition expense over the premium-paying period unless the product is designed with a front-end load.

The profit test should include the release of the reserve and the release of capital, because these are cash flows to the company.

The product design should be tested for sensitivity to lapse, mortality, expense, and interest, and the results should be reported with the pricing recommendation.

The product file should record the data source, the credibility, and the margin for each assumption, so that the assumption can be defended in a regulatory review.

The expected present value of a benefit stream is the sum over durations of the probability of survival to the duration times the benefit amount times the discount factor.

The probability of decrement in a duration is the probability of survival to the start of the duration times the decrement rate for that duration.

For multiple decrements, the probabilities must be computed from the multiple-decrement table, not by applying each rate independently.

The discount factor for a cash flow at duration t is (1+i)^-t for annual flows; for monthly flows, use the equivalent monthly rate.

The expense load should recover the acquisition expense over the premium-paying period, not only in the first year.

The profit test should include the release of the reserve and the release of capital, because these are cash flows to the company.

The pricing actuary should set a target profit margin before the design is finalized, so that design choices are evaluated against a fixed objective.

The product design should be tested for sensitivity to the lapse rate, because lapse is the assumption most often wrong and the one with the largest effect.

The pricing file should record the data source, the credibility, and the margin for each assumption, so that the assumption can be defended in a regulatory review.

The product development process should include a post-launch review at a fixed interval to compare actual experience to the pricing assumptions.

The actuarial memorandum should state the valuation basis, the reserve method, the assumptions, and the certification.

The product design should be consistent with the company's underwriting and claims processes, because a design that requires underwriting the company cannot deliver will produce adverse selection.

The cost of a guarantee is the difference between the value of the guaranteed benefit and the value of the benefit without the guarantee, measured under a market-consistent stochastic model.

The reserve for a product with a guarantee should include the time value of the guarantee, not only the expected cost.

The pricing of a product with a participation feature should include the cost of the participation, which depends on the expected credited rate and on policyholder behavior.

The product development team should include a review of the tax treatment of the product, because tax can change the relative profitability of designs.

The pricing actuary should document the model version and the assumption set used for each pricing run.

The final product design should be approved by the appropriate governance body, with the actuarial memorandum and the profit test as the supporting documentation.

The expected profit per policy is the present value of the profit cash flows divided by the expected number of policies in force.

The return on capital is the present value of distributable earnings divided by the capital required.

The break-even year and the internal rate of return are related, but they can diverge when the cash flow pattern is unusual.

The profit test should be run on a statutory basis and on an economic basis, and any difference should be documented.

The pricing actuary should test the product under a sustained low-interest scenario, because that is the most damaging scenario for products with guarantees.

The product design should be reviewed against the company's capital plan, and a product that requires more capital than the plan allows must be redesigned or reinsured.

The actuarial control cycle is the governance framework: define the problem, set assumptions, build the model, communicate results, monitor experience, and revise.

The assumption-setting process should use company experience where it is credible and industry data where it is not.

The pricing actuary should test the product against the company's risk appetite and against the regulatory constraints before the design is finalized.

The product file should include the pricing model, the assumptions, the results, the sensitivity tests, and the review comments.

The product development process should include a review of the competitive environment and the distribution channel.

The product should be monitored after launch, and the assumptions should be updated when experience emerges.

The reserve at duration t for a level-premium product is the present value of future benefits less the present value of future net premiums.

The cash value should be less than or equal to the reserve at each duration.

The gross premium should recover the acquisition expense over the premium-paying period unless the product is designed with a front-end load.

The profit test should include the release of the reserve and the release of capital.

The product design should be tested for sensitivity to lapse, mortality, expense, and interest.

The product file should record the data source, the credibility, and the margin for each assumption.