Investment Generation Method

Investment Generation Method

New Money (Investment Generation Method) vs Portfolio

 

1980-4 NAIC Proc. 

 

If a company chooses to use an investment

year method or an investment generation method, the committee plans to

recommend that the actuary be responsible for more than a statement that

such method is not comparable to a portfolio method. For example,

consideration will be given to the requirement of quantitative comparisons,

such as, indicating the difference between the new money rate assumed in

the dividend illustration and the portfolio interest rate and estimating

 

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1981-2

1. Report of the Advisory Committee on Policy Lapsation

 

Consumer Disclosure

The suggested changes to the buyer’s guide (Attachment One-B2) incorporate several new ideas. First, while the current buyer’s guide describes the concept of cost and identifies the differences between illustrations of cost of participating and nonparticipating policies, the redraft recognizes the existence of cost illustrations of products recently introduced.

Second, the suggested modifications identify the difference between investment generation and portfolio average methods in the determination of dividends. At the suggestion of the NAIC Advisory Committee on Manipulation, dividends based on investment generation methods are identified as being more sensitive to changes in current interest rates.

Finally, the suggested modifications recognize the existence of the newly adopted principles and practices and warn the prospective insured to be aware of any exception language which may be required on the illustration.

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“Suggested language which should accompany the illustration , must necessarily

be brief . We believe, however , that in all cases there should be an identification

of the method of investment income allocation used , because of

the significantly different illustrative result , in addition , each required

exception statement that appears in the suggested Schedule ii would also need

to be briefly summarized .” 1981 Journal, American Academy of Actuaries

http://dev.actuary.org/content/academy-journal-1981

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