CEIOPS' Advice for Level 2 Implementing ... - EIOPA - Europa

• the economic cycle affecting policyholders’ ability to pay further
premiums;
• the personal circumstances of policyholders and whether they can
afford premiums
3.176 A non-exhaustive list of possible simplifications for modelling surrender
rates, which could be used in combination includes:
• assume that surrenders occur independently of financial/ economic
factors,
• assume that surrenders occur independently of biometric factors,
• assume independency in relation to management actions,
• assume that surrenders occur independently of the undertaking
specific information,
• use a table of surrender rates that are differentiated by factors such
as age, time since policy inception, product type,...,
• model the surrender as a harzard process either with a non-constant
or constant intensity.
3.177 Some of these simplifications convert the hazard process in deterministic
function which implies independency between the surrender time and the
evaluation of economic factors, which are obvious not a realistic
assumptions since policyholder behaviour is not static and is expected to
vary as a result of changing economic environment.
3.178 Other possible surrender models 63 where the surrender rate SR t for a
policy at time t also depend on economic variables include the following:
• Lemay’s model
FVt
SRt = a ⋅α
+ b ⋅
GV
• Arctangent model = a + b ⋅ arctan( m∆
− n)
• Parabolic model
• Modified parabolic model
SRt t
SR = a + b ⋅ sign ∆
MRt
• Exponential model SR = a + b ⋅ e
SR
t
t
t
40/112
t
2
( ∆ t ) ⋅ t
= a + b ⋅ sign(
∆ ) ⋅ ∆ ⋅ k + c
CRt
m⋅
t
t
( CRt
−1−CRt
)
FVt
−CSVt
• New York State Law 126 SR = a + b ⋅ sign(
∆ ) ⋅ ∆ ⋅ k − c ⋅ ( )
t
where a , b,
c,
m,
n,
j,
k are coefficients, α denotes underlying (possible time
dependent) base laps rate, FV denotes the fund/account value of the
policy, GV denotes the guaranteed value of the policy, ∆ equals reference
market rate less crediting rate less surrender charge, CR denotes the
credit rate, MR denotes the reference market rate, CSV denotes the cash
surrender value and
sign ( x)
= 1
if x ≥ 0 and
63 Models giving surrender rates above 100 % are not relevant.
t
t
FVt
© CEIOPS 2010