Pricing a Case
Getting a Case into a position where it can be priced in ClariNet requires that certain key fields be populated. It does not require that all fields be populated. Below we explain what fields are required to price a Case. Depending on the method you use to create the Case (i.e., Case Setup Form, Case View, Common Case Standard XML importer or Excel importer), you may need to add some information during or after setup in order to complete pricing.
Assumptions
This guide assumes that you have already set up at least one Valuation Template with the parameters you wish to use in your pricing model and that you are familiar with the process to create, enter or upload a Premium Schedule.
Data Requirements: Case Summary and Premium Schedule
There are certain fields on each tab that need to be completed:
- Case: Case Reference;
- Policy: Face Amount, Maturity Age, Extended DB Rider Period, Policy Date, Policy Type, Death Benefit Type, Age Basis*, Default Per Unit Charge Frequency, Default Per Policy Charge Frequency;
- Insured Lives: Date of Birth, Gender; and
- Life Expectancy Information: At least one Life Expectancy Report needs to be added for each surviving Insured.
In addition to these data fields being completed, at least one Premium Schedule must exist. This can be generated (using ClariNet’s Premium Calculator), entered manually via the Premiums tab in the Case Summary or imported. If the Premium Schedule is entered manually or imported, remember that it must include at least one entry in the Net Death Benefit column (note that Cases with Policies with a Death Benefit Type set to a value other than Level will need to have one Net Death Benefit entry per row in the Premium Schedule table).
How to check that a Case is ready for pricing
If the Add icon on the Valuations tab is active, the Case is ready for pricing. If the icon is inactive - indicating that the Case is not ready for pricing - then hovering the mouse over the icon displays a pop-up window with a list of reasons why the Case is not ready for pricing. You can fix these reasons by adding data to the Case as outlined under Data Requirements above.
Pricing a Case on the Valuations tab
Click the Add icon on the Valuations tab in the Case Summary to unroll the single policy pricing model beneath the list of existing Valuations for the Case (if any). Note that the single policy pricing model opens with the Case already valued, using default values/selections determined as outlined below. The Generate button is inactive when the model opens.
Premium Schedule
The initial selection of Premium Schedule in this section is set by reference to the Valuation Settings for the Case, which defaults to using the Premium Schedule with the most recent Pricing Date. Clicking the radio button in the “Use?” column next to another Premium Schedule selects that Premium Schedule for use in pricing.
Primary Insured
This section selects the blend of LE Reports to be used in pricing. The initial selection is also drawn from the Valuation Settings for the Case, which defaults to using the LE Report with the most recent Report Date at 100% weighting. If no Mortality Table is specified in the Valuation Settings for the selected LE Report, the Mortality Table is the one set in the Default Settings tab of the Pricing and Risk page under the Admin menu. If this has not been specified, it defaults to 2015 VBT. Note that only Lx and Mqx Blending require a Mortality Table setting for the individual LE reports; all other LE Blending methods draw upon the Valuation Template.
The LE Report table is repeated for each surviving insured. The Blend percentages for all selected LE Reports for each surviving Insured must add up to 100%. For a joint life Policy with a second Insured, a similar table appears under the heading "Secondary Insured".
Valuation
This section contains the following fields:
- Description: A free text field to add a comment on the pricing. This is saved with the valuation and displayed in the Valuations table.
- Valuation Template: The primary Valuation Template to use as the basis for pricing. Initially set to the Default Valuation Template set in the Default Settings tab on the Pricing and Risk page under the Admin menu. This defaults to Standard Valuation Template.
- Pricing Type: Defaults to Probabilistic. Other options are:
- Custom IRR;
- Deterministic (Aged Joint LE);
- Deterministic (Individual LE); and
- Deterministic (Value Date).
- Underwriter Weightings: Defaults to Primary. The other options are Actual Expected or any Custom Case Weightings. These select the LE Report blend specified under the relevant tab on the Valuation Settings tab (if set).
- Value Date: The date as of which the pricing is calculated (i.e., cashflows are discounted back to this date). Defaults to today.
- Retained DB Amount: Expressed as a USD amount, this is deducted from the Face Amount before pricing the Case.
- Retained DB Percentage: This is deducted from the Face Amount before pricing the Case. Note that the Retained DB Amount is deducted AFTER the percentage is applied; the formula is NDB = Face Amount * (100% - Retained DB Percentage) – Retained DB Amount.
- Risk Scenario: This allows you to add stresses to the Case (such as LE extensions, implied mortality factor increases or premium increases) by selecting a Risk Scenario. These are created using the Risk Scenario tab in the Pricing and Risk page under the Admin menu.
Generate
The Generate button is inactive when the Valuation is first unrolled. It becomes active whenever data changes in any of the upper sections of the page and a warning is shown – “Data has changed. Please regenerate the valuation.” At this point, the Results table is also inactive. Once the Generate button is active, clicking it reprices the Case and the Results table is active again.
Reading the Results
The Results section contains the basic valuations for the Case generated from the single policy pricing model, as well as some intermediate results. You can interact with the values and the intermediate results using the different tabs above the table.
Valuation
This table shows intermediate and final results for each of the Valuation Templates selected in the left column. The top Valuation Template is fixed (based on the selection in the Valuation section above); up to two other Valuation Templates can be selected.
If two or more LE Reports have been selected in the Primary/Secondary Insured tables, further rows are displayed in the Valuation table. The first row shows the pricing results based on the selected LE blend and subsequent rows show the results based on selecting 100% of each of the individual LE Reports used in the blend (as identified in the “Blend” column). The order of the individual LE reports is taken from the Primary/Secondary Insured table.
Other columns in the Valuation table are:
- LE 1: The mean LE50 (either as stated from the LE Report or calculated if the underwriter’s mortality factor is used). If there is a Secondary Insured, that value appears under LE 2;
- MF 1: The Implied MF (which may equal the underwriter’s mortality factor if that is selected). If there is a Secondary Insured, that value appears under MF 2;
- Aged LEs: The aged LE50 for each surviving insured determined as of Value Date;
- Scenario 1/2/3: The value of the Case as at the Value Date based on discounting cashflows back at the discount rate specified in the selected Valuation Template for that Scenario. The discount rate is shown in parentheses next to the value;
- Scratch pad: A tool to switch between calculating the IRR for a given value and calculating the value for a given discount rate. The arrow moves from input to output, so clicking on the arrow changes the calculation.
Survival Risk Analysis
This table shows cashflows and survival probability on a monthly basis, starting with the first Policy monthiversary after Value Date. For each Policy month, the Insured ages, actual premium and purchase cashflows and mortality adjusted premiums and NDBs are shown.
Probabilistic Valuation
This tab takes in an Assumed Purchase Cost and Assumed Purchase Date (which can be set from the Cost/Maturity/Disposal tab in Case Summary or copied in from the Valuation). It generates a graph which shows the expected IRR for the Case as the Assumed Purchase Cost changes.
Deterministic Valuation
This tab takes in the same inputs as the Probabilistic Valuation tab, as well as a LE Bump Percentage (0 to 90% in 10% increments). It displays the equivalent IRR that would be realized by an investor purchasing the Case at the Assumed Purchase Cost on the Assumed Purchase Date, based on the Policy maturing 1,, 2, 3 … 20 years after Value Date. A table showing the Realized IRR for each year is shown to the right of the graph. Beneath the graph is a table showing a series of values calculated as of certain dates, being the blended LE50 (expressed as a date) plus the LE Bump Percentage, the Break Even Date (i.e., the point as of which the Assumed Purchase Cost plus Premiums equals the NDB) and the Policy Maturity (i.e., the Policy anniversary immediately following the later of the Maturity Age and the Extended DB Rider Age on the Policy tab). A Key beneath the table explains the values show in each column.
Scratch Pad
This is an extension of the Scratch Pad shown on the Valuation table. This allows you to vary any three of Premium IRR, Fees IRR, NDB IRR and PV and calculate the fourth.
Assumptions
Where the pricing has been done based on a Premium Schedule generated using the Premium Calculator, this tab shows the AV and CSV as of the Start Date for the Premium Schedule and as of the Value Date, together with the assumed premium payments prior to the Start Date for the Premium Schedule and between the Start Date and Value Date.
COI
Where the pricing has been done based on a Premium Schedule generated using the Premium Calculator, this tab displays the Used COI values (expressed as dollars per $1,000 unit of insurance) which were used to calculate the Premium Schedule.
Saving the Results
Clicking Save will save the pricing results into the Valuations table on the Valuations tab in Case Summary. Clicking Cancel returns to the Valuations tab with no data saved.