Surrender Charge Type

This document describes the behavior of the Surrender Charge Type field, which is part of the Policy entity in ClariNet LS. It’s a required field that defaults to Annual.

The field has 4 possible values:

Annual: the surrender charge for a policy year is the value calculated at the end of that policy year in the illustration [This is the only behavior available in ClariNet LS until July 2018];

Annual with Delay: the surrender charge calculated at the end of a policy year is used for the following policy year;

Monthly Graded: the same as Annual except the value decreases equally each month;

Monthly Graded with Delay: same as Annual with Delay except the value decreases gradually each month.

The behavior is best illustrated with an example.

Example Case

Consider this case:

This is our basic surrender charge curve:

Annual

Out of the box monthly optimization (threshold CSV $0) gives us the surrender charge (SC) of $34,951, dropping to $26,214 in policy year 12.

Annual Delay

The same calculation but with the policy set to Annual with Delay gives us this result:

You can see that we start with a SC of $39,320, which is based on the SC on illustration date ($99,184-$59,864). We then drop to $34,951 in PY 12 because the Annual with Delay tells us that the SC calculated at the end of PY 11 in the illustration is used in PY 12.

Monthly Graded

With the policy set to Monthly Graded, the SC starts at $30,583. This value is calculated as 6 months into the period between a surrender charge of $34,951 and $26,214. The next month it drops to $29,854. The monthly drop is:

($34,951-$26,214)*1/12 = $728

Monthly Graded with Delay

The behavior here is similar to Monthly Graded but with the start and end values being $41,505 and $35,951 and the monthly drop being $546.

The SC on illustration date is $39,320. Since this is 4 months after policy anniversary, we assume that the SC on the policy anniversary was $39,320+($546*4) = $41,505.