Targeted Improvements Interactive Model

Question 1

What to learn

Answer 1

Understand how changes to mortality and lapse Assumptions and Experience drive changes in the level and patterns for DAC and reserves

DAC and reserve calculations

Question 2

20 YT DAC Tab

Answer 2

Renewal acquisition costs tend to increase the DAC amortization rate because the amorization ratio is recalculated as additional deferrable acquisition costs are incurred

** The amorization ratio increases when assumed future persistency falls ( i.e. if you expect more lapses in the future, the DAC will amortize faster)**

No experience adjustments are allowed if persistency is higher than expected

DAC should be zero when there are no more policies in force

Question 3

Other key concepts

Answer 3

• If terminations are higher than expected, the experience adjustments lowers DAC further
• Additional incurred deferrable acquisition costs increase the amorization ratio
• If lapses increase in year 11+, DAC runs off faster (lower DAC balances)
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