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UPDATEONMODELOFFICE

ECONOMICSCENARIO

GENERATOR(ESG)TESTING

2

Background

ULSG/VMͲ20

VA/VMͲ21

JasonKehrberg,MAAA,FSA

4

AgendaforVMͲ20ModelOfficeUpdate1.

ChangesandNewInfo

2.

December2020StochasticReserves

3.

ScenarioReserveDistributions

4.

SampleScenarioProjections

5.

December2019StochasticReserves

6.

PreliminaryConclusions

7.

Caveats

5

VMͲ20ModelOffice- ChangesSince3/3/22

Nootherchangessince3/3/22

6

VMͲ20ModelOffice- AdditionalInfo

Usingannualreinvestmentfrequency

7

December2020StochasticReserves

ScenarioSet Stochastic

ReserveInitialReserve/$12K

AnnualPremium

AcademyInterestRateGenerator(AIRG) 18,511 154%

ConningOct21Calibration(Unfloored) 39,193 327%

ConningwithGeneralizedFractionalFloor 31,812 265%

StrommenwithShadowRateModelFloor 28,556 238%

ACLIReferenceModelv1.1 31,659 264%

8

ScenarioReserveDistributions

tohelpwiththescale 9

SampleScenarioProjections

*Only1,000outof10,000scenarioswererun

Bluelineistheprojectionoftotalassets

10

SampleGoodScenario

StartingAssets=

18,511

GPVAD=

Ͳ18,511

ScenarioReserve=

0 thenegativeofstartingassets 11

AIRG,WorstScenario

StartingAssets=

18,511

GPVAD=

34,424

ScenarioReserve=

55,935

theGPVAD 12

Conning(Unfloored),WorstScenario

StartingAssets=

39,202

GPVAD=

497,663

ScenarioReserve=

536,865

leadstoextremelylargeGPVAD 13

Conning(withGFF),WorstScenario

StartingAssets=

31,828

GPVAD=

195,913

ScenarioReserve=

227,741

14

Strommen,WorstScenario

StartingAssets=

28,561

GPVAD=

163,055

ScenarioReserve=

191,616

15

ACLIReference,WorstScenario

StartingAssets=

31,666

GPVAD=

160,211

ScenarioReserve=

191,877

near0% 16

December2019StochasticReserves

ScenarioSet StochasticReserve %Changevs.2020

AcademyInterestRateGenerator(AIRG) 15,200Ͳ17.9%

ConningOct21Calibration(Unfloored) TBD N/A

ConningwithGeneralizedFractionalFloor TBD N/A

StrommenwithShadowRateModelFloor TBD N/A

ACLIReferenceModelv1.1 22,786Ͳ28.0%

17

PreliminaryConclusions

18

Caveats

Notintendedto:

20

4.SampleScenarioReservecalculations

5.Summaryofresults-allscenariosets

6.Preliminaryconclusions

7.LargeCapEquityFundreturncomparisons

8.Scenarioreservedistributions

9.Preliminarysensitivitytesting

10.Caveats

21

VMͲ21ModelOffice- ChangesSince3/3/22

Nootherchangessince3/3/22

22

ProductSpecifications

SevenͲyearsurrenderchargeperiod

Singlemodel pointissuedtoage60maleonthevaluationdatewithsinglepremiumof$100,000 23

ProductSpecifications

Issueage 60

Singlepremiumatissue $100,000

Fundallocation 80%USlargecapequity/20%USLTCorpbond,rebalancedmonthly

M&Eriskcharges(annlzd.) 1.30%(appliedtofundvalue)

Invmgmtfee(annlzd) 0.75%(halfofthisfeecomesbacktocompanyasguaranteedrevenuesharing)

Surrenderchargeperiod 7years

SC%ofdeposit 8,7,6,

5,4,3,2%

GuaranteedBenefits GLWB GMDB

BenefitBaseRollup%5%5%

Rollupperiod 10years Uptoage80

Ratchetorreset No No

WithdrawalsProͲrata

1

ProͲrata

Ridercharge(annlzd.) 1.20% 0.30%

GLWBwithdrawalrate%

AttainedAge59Ͳ64 4.00%

AttainedAge65Ͳ74 5.00%

AttainedAge75Ͳ79 5.25%

AttainedAge80+ 5.50%

fordollarasWD'saretaken

VariableAnnuityBasecontract

24

LiabilityAssumptions

Mortality2012IAM,improvementscaleG2,VMͲ21ASPAFx factors

Assumed100%ofmaximumGLWBwithdrawalpercentage(appliedtomaxofEoY 10fundvalueorbenefitbase)istakenaslifetimeincomeamountatyear10election

Bothoftheabove(timingandamount)aremoreconservativethanprescribedandindustryexperienceandwereassumedforinitial modelingconvenienceandtimeconstraints

25

AssetAssumptions

9basispoints(bp)annualinvestmentexpense

liabilitycashflows

10,000scenarioswererunforeachscenarioset

26

VMͲ21ReserveMethodDescription

ScenarioReserve forthismodelsegment=Max(aggregatecashsurrendervalue(CSV),StartingAssets+GreatestPresentValueofAccumulatedDeficiencies(GPVAD))

thescenario

GPVAD(NAER)

27

SampleScenarioReserveCalculations

Beforediscussingthefullscenario

setresults,itisusefultoreviewthe mechanicsandkeyamountsofthe scenarioreservecalculation.

Thenext3slidesdiscussandshow

graphsofthisdetailfor2ofthe

3,000scenarioreservescomprising

theCTE70stochasticreserve.

Scenario8025

$134,593

Scenario8025

reserve= $134,593

Scenario3267Scenario3267

reserve= $93,804 28

SampleScenarioReserveCalculations

Greenline istheseparateaccountassets(fundvalue);startsatdepositandgrowsordeclinesbasedonscenariofundreturnsnetoffees,andasfundvalueisreleasedonsurrender,deathandGLWBwithdrawalpaymentswhilefundvalueispositive

Blueline isthegeneralaccountassets/deficienciespriortothescenarioreserveassetsaddedin.Startsnegative(initialSASCborrowing)andgrowsinearlyyearsasfeeincomeisinvested(netofexpensesandsomeGMDBandGLWBclaimsinexcess

offundvaluereleased).ThendeclinesafterseparateaccountfundvalueexhaustsandcontinuingGMDB+GLWBclaims and

oftheCTE70scenarios.

Orangeline isthePVofthebluelineassetsanddeficiencies,discountedatthenetearnedratesonadditionalassets(NAER).ThegreatestoftheprojectedyearͲendPVofnegativeofthedeficiencies(GPVAD)isthescenarioreserveneededtobe

Yellowline isthenewprojectionofthebluelinegeneralaccountassetsbutnowincludingtheinitialscenarioreserveassetsandshowstheprojectedyearͲenddeficiencieshavebeeneliminated.

29

HighReserveScenario

annzld cumNAER largecap LTcorp fundvalueGPVAD equityfund bondfund wtdavgdiscrate

1year 4.65%Ͳ7.33% 2.36% 2.57%

5yearsͲ0.57% 1.48% 0.15% 2.61%

10yearsͲ12.13% 0.54%Ͳ9.44% 2.65%

15yearsͲ7.53% 1.22%Ͳ6.45% 2.68%

20yearsͲ4.55% 1.84%Ͳ4.88% 2.73%

30yearsͲ6.54% 2.22%Ͳ3.28% 2.91%

40yearsͲ4.01% 3.18%Ͳ2.47% 3.75%

basedonscenariowealthratios

Summary:

andrepaymentofinitialSASCborrowing •Totalscenarioreserve=$134,593 GPVAD $41,793 30

LowReserveScenario

Summary:

andrepaymentofinitialSASCborrowing •Totalscenarioreserve=$93,804 annzld cumNAER largecap LTcorp fundvalueGPVAD equityfund bondfund wtdavgdiscrate

1yearͲ6.65%Ͳ13.89%Ͳ8.03% 2.57%

5years 0.30% 2.11% 0.88% 2.62%

10years 2.38% 3.69% 2.84% 2.69%

15years 4.29% 2.96% 4.25% 2.72%

20yearsͲ0.25% 1.13% 0.61% 2.68%

30years 1.97% 2.55% 0.41% 2.69%

40years 2.71% 1.73% 0.31% 2.72%

basedonscenariowealthratios GPVAD $1,004 deathbenefitsandexpenses. 31

SummaryofResults-AllScenarioSets

Thenext2slidessummarizethe:

•StochasticCTE70reservesand •C3Phase2TotalAssetsRequired(TAR)

Forthefollowingscenariosetstested:

1. AIRGscenarios

2. ACLIreferenceSLVmodel(version1)

3. ConningGEMSwithGeneralizedFractionalFloor(GFF)

4. StrommenwithShadowRateFloor(version4B)

5. ConningGEMSunfloored12/31/2020valuationdatescenariosdevelopedin

October2021

theequityrisk 32

SummaryofResultsͲCTE70Reserves

CTE70ReserveRatioto

CSV12/31/2020

CTE70ReserveRatioto

CSV 1 AcademyInterestRateGenerator(AIRG) 95,854 103.3% 98,491 106.1% 2 ACLIReferenceModelV1.0 96,146 103.6% 98,515 106.2% 3 ConningwithGeneralizedFractionalFloor TBD 107,860 116.2% 4 StrommenwithShadowRateModelFloor TBD 108,971 117.4% 5 ConningOct21Calibration(Unfloored) TBD 110,825 119.4%

3hybrid

ConningwithGFF,usingAIRGequityscens 97,406 105.0%

4hybrid

StrommenwithSRF,usingAIRGequityscens

5hybrid

ConningOct21unfl,usingAIRGequityscens

Reserves(gen.acct.resvisexcessoverCSV)

33

SummaryofResults-C3P2TAR

C3P2TARRatioto

CSV12/31/2020

C3P2TARRatioto

CSV 1 AcademyInterestRateGenerator(AIRG) 99,268 107.0% 103,082 111.1% 2 ACLIReferenceModelV1.0 99,769 107.5% 103,202 111.2% 3 ConningwithGeneralizedFractionalFloor TBD 113,470 122.3% 4 StrommenwithShadowRateModelFloor TBD 114,226 123.1% 5 ConningOct21Calibration(Unfloored) TBD 116,209 125.2%

3hybrid

ConningwithGFF,usingAIRGequityscens 101,811 109.7%

4hybrid

StrommenwithSRF,usingAIRGequityscens

5hybrid

ConningOct21unfl,usingAIRGequityscens

C3P2TAR

34

PreliminaryConclusions

Impacttoreservesisverylargeunderthe3ConningESGscenariosets(Octunfloored,GFF,StrommenSRF)relativetocurrent AIRGorACLIreferencemodel

havethislinkage.

SpecificallytheGEMSLargeCapexpectedequityreturnisroughlytheOvernightRateplusafixedERP. Thelinkhappensateverynodeofthesimulation,sotheshortͲtermexpectedequityreturnisconstantlychanging.EarlyyearverylowandnegativeOvernightsimulatedratescanmateriallyreducethesimulatedequityreturns. As

theaverageyieldsriseinthesescenarios,therewillbeageneralriseintheaverageLargeCapreturn,buttheoverallimpactcumulativeappearstobe lowerreturnsasshownonslide36 which compareslefttailequityreturnsacrossthesets(lefttailmorerelevantforthisparticularproduct).

35

PreliminaryConclusions

to returns) 36

ComparisonofEquityScenarios

5years 10years 15years 20years 30years 5years 10years 15years 20years 30years 5years 10years 15years 20years 30years

percentile

50.00% 5.28% 5.45% 5.65% 5.81% 6.08% 7.70% 7.75% 7.65% 7.66% 7.59%Ͳ2.42%Ͳ2.30%Ͳ1.99%Ͳ1.85%Ͳ1.50%

10.00%Ͳ4.22%Ͳ1.85%Ͳ0.58% 0.24% 1.36%Ͳ1.53% 1.12% 2.35% 2.98% 3.84%Ͳ2.69%Ͳ2.97%Ͳ2.92%Ͳ2.74%Ͳ2.48%

5.00%Ͳ7.44%Ͳ4.41%Ͳ2.61%Ͳ1.52%Ͳ0.14%Ͳ4.35%Ͳ0.87% 0.65% 1.74% 2.81%Ͳ3.10%Ͳ3.54%Ͳ3.26%Ͳ3.25%Ͳ2.95%

2.34%Ͳ0.65% 0.58% 1.82%Ͳ3.72%Ͳ4.68%Ͳ3.57%Ͳ3.62%Ͳ3.18%

0.50%Ͳ16.64%Ͳ11.80%Ͳ8.38%Ͳ5.95%Ͳ3.84%Ͳ11.10%Ͳ5.23%Ͳ2.90%Ͳ1.41% 0.00%Ͳ5.54%Ͳ6.56%Ͳ5.48%Ͳ4.54%Ͳ3.84%

mean 5.74% 6.38% 6.88% 7.28% 8.03% 8.73% 8.83% 8.82% 8.82% 8.81%Ͳ2.99%Ͳ2.44%Ͳ1.94%Ͳ1.53%Ͳ0.78%

50.00% 5.18% 5.11% 5.22% 5.37% 5.64% 7.70% 7.75% 7.65% 7.66% 7.59%Ͳ2.52%Ͳ2.64%Ͳ2.43%Ͳ2.29%Ͳ1.95%

10.00%Ͳ4.21%Ͳ1.99%Ͳ

0.86% 0.13% 1.16%Ͳ1.53% 1.12% 2.35% 2.98% 3.84%Ͳ2.69%Ͳ3.11%Ͳ3.21%Ͳ2.85%Ͳ2.68%

5.00%Ͳ7.58%Ͳ4.55%Ͳ2.67%Ͳ1.67%Ͳ0.24%Ͳ4.35%Ͳ0.87% 0.65% 1.74% 2.81%Ͳ3.23%Ͳ3.68%Ͳ3.33%Ͳ3.40%Ͳ3.05%

2.50%Ͳ10.23%Ͳ7.01%Ͳ4.40%Ͳ3.24%Ͳ1.49%Ͳ6.74%Ͳ2.34%Ͳ0.65% 0.58% 1.82%Ͳ3.49%Ͳ4.67%Ͳ3.75%Ͳ3.82%Ͳ3.30%

0.50%Ͳ16.84%Ͳ11.55%Ͳ8.83%Ͳ5.98%Ͳ4.07%Ͳ11.10%Ͳ5.23%Ͳ2.90%Ͳ1.41% 0.00%Ͳ5.74%Ͳ6.32%Ͳ5.93%Ͳ4.57%Ͳ4.07%

minͲ33.40%Ͳ23.68%Ͳ18.42%

mean 5.59% 5.89% 6.19% 6.47% 7.02% 8.73% 8.83% 8.82% 8.82% 8.81%Ͳ3.14%Ͳ2.94%Ͳ2.63%Ͳ2.35%Ͳ1.78%

50.00% 5.49% 5.18% 5.20% 5.26% 5.47% 7.70% 7.75% 7.65% 7.66% 7.59%Ͳ2.21%Ͳ2.57%Ͳ2.45%Ͳ2.40%Ͳ2.12%

10.00%Ͳ4.25%Ͳ2.30%Ͳ1.33%Ͳ0.66% 0.30%Ͳ1.53% 1.12% 2.35% 2.98% 3.84%Ͳ2.72%Ͳ3.42%Ͳ3.68%Ͳ3.64%Ͳ3.54%

5.00%Ͳ7.42%Ͳ4.99%Ͳ3.33%Ͳ2.47%Ͳ1.22%Ͳ4.35%Ͳ0.87% 0.65% 1.74% 2.81%Ͳ3.07%Ͳ4.12%Ͳ3.98%Ͳ4.21%Ͳ4.04%

Ͳ2.47%Ͳ6.74%Ͳ2.34%Ͳ0.65% 0.58% 1.82%Ͳ3.78%Ͳ5.23%Ͳ4.61%Ͳ4.56%Ͳ4.28%

0.50%Ͳ16.42%Ͳ12.08%Ͳ9.44%Ͳ7.20%Ͳ5.12%Ͳ11.10%Ͳ5.23%Ͳ2.90%Ͳ1.41% 0.00%Ͳ5.31%Ͳ6.85%Ͳ6.55%Ͳ5.79%Ͳ5.12%

mean 6.00% 6.29% 6.66% 7.03% 7.81% 8.73% 8.83% 8.82% 8.82% 8.81%Ͳ2.73%Ͳ2.53%Ͳ2.16%Ͳ1.79%Ͳ1.00%ConningGEMSGFFminusAIRG

Strommen4B

minusAIRG ConningGEMSOct21unflooredminusAIRGConningGEMSwithGFF12/31/2020 AIRG12/31/2020(sameas12/31/2019) Strommen4BwithSRF12/31/2020 AIRG12/31/2020(sameas12/31/2019) ConningGEMSOct21unfloored12/31/2020 AIRG12/31/2020(sameas12/31/2019) 37

ScenarioReserveDistributions

38

PreliminarySensitivityTests

EoY40 annualized EoY40 annualized

accumulated NAERdiscrate accumulated NAERdiscrate

SensitivityTestsforonescenario

deficiency GPVAD over40years deficiency GPVAD over40years

1 ConningGFFscenario#8025(basecase)(182,096)41,7933.75%

2 +25bpparallelshiftupallUSTrates(187,776)38,9334.00% (5,680)(2,861)0.25%

3Ͳ25bpparallelshiftdownallUSTrates(176,485)44,8613.49% 5,6113,068 Ͳ0.25%

4+25bphigherequityfundtotalreturns(80%alloc)(180,449)41,4153.75% 1,647(378)0.00%

5 +25bprate

shiftand+25bpequityreturns(186,006)38,5664.00% (3,910)(3,228)0.25%

Initialcomments:

2 Accumulateddeficiencyisworsewhenratesarehigherduetohigherborrowingcosts,butGPVAD(generalaccountreserve)islower.

ongoing

3 Accumulateddeficiencyislesswhenratesarelowerduetolowerborrowingcosts,but

GPVAD(generalaccountreserve)ishigher.

2&3 ThusthereserveimpactisslighltyasymmetricforUSTsensitivity($3,068higherreservefortest3versus$2,861lowerreservefortest2).

4 RelativelylowfavorableimpactofthehigherequityreturnsforthisscenarioͲseparateaccountstilldeclinesquicklytozeroevenafter

5 Combinedimpactisclosetosumofthe

partstests2+4. 39

Caveats

Notintendedto:

40

Questions?

quotesdbs_dbs42.pdfusesText_42

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