Implementation Considerations for VA MRBs

Question 1

Methodology Considerations

Answer 1

1. MRBs should folow FV accounting
2. Multiple MRBs on a single contract should be bundled into a compound MRB
3. MRB FV can be calculated using an option or non-option appraoch, which is more common
4. The non-option approach solves for an attributed fee such that the MRB value is zero at inception: PV (MRBs) - PV (Attributed Fees)

Inputs needed for MRB valuation
1. Risk-neutral interest and equity scenarios
2. Own credit risk
3. Policyholder behavior assumptions (lapse, withdrawals, and benefit utilization)
4. Risk margins for unobservable inputs/ assumptions

Question 2

Operational Considerations

Answer 2

1. ** The new disclosure requirements could require significant process/ infrastructrue changes, especially for companies who only calculated SOP 03-1 liabilities for GMxBs in the past **

Much of the operational challenge will be related to the retrospective transition adjustment required for MRBs. Will require work to rebuild models from the past so that calculations can be performed from the contracts’ origianl issue dates

Problems will likely arise from changes in software versions, data availabiltiy, lack fo documentations