US GAAP Long Duration Targeted Improvements
ARC’s software solutions have evolved over the years to support new regulations and will continue to do that into the future. With the US GAAP LDTI, our goal is to minimize the impact of the new requirements to our existing customers and to make the implementation of the software to new customers as efficient as possible. Our solution leverages many of our existing applications to support the new calculations as well as the new data requirements for FAS 60 business.
Collect and Manage Policy Data
Implementation of the US GAAP LDTI is a phased approach. Starting 12/31/2019, companies will begin collecting data to meet the transition requirements. Our ARCBase actuarial data mart is ready to accept, validate, manage and provide this data for the new GAAP reserve process. ARC will provide an easy to use and flexible input format to customers to allow them to start the data collection process. ARCBase has the capacity to collect auxiliary information that could prove useful for experience analysis, assumption unlocking, and other key financial reporting analytics.
Each month, ARCVAL’s flexible format extracts for inforce, activity and cash flows from administrative and accounting systems are loaded into ARCBase. For traditional business, this includes contract activity for issues, deaths, surrenders; first year and renewal premiums; first year and renewal commissions; withdrawal, and annuitization benefits; dividends; policy loan activity; and acquisition, maintenance and benefit expenses, and premium taxes.
Company data is comprised of a wealth of information from a variety systems, all supporting their own internal coding standards, data formats and nuanced handling of unique policy events. Turning these rich sources of data into a form that provides actionable analytics is a daunting task. For this very reason, ARCBase was developed as a solution designed to provide insurers with a systematic process for managing and improving the quality of their data.
Create GAAP History
Collection, management and analysis of policy data, claims and transactions is only phase 1 of the implementation for US GAAP LDTI. As part of ARC’s solution, we are leveraging our GAAP History Builder application to provide insurers with the ability to allocate high level accounting data, such as commission and expenses, down to the cohort or contract level. The application has also been designed to fill in the gaps where data is missing by utilizing model assumptions. Under this approach, the gaps are filled with model data and blended in with the actual data to produce valid account value roll-forwards.
The liability for future policy benefits for traditional business is developed for each cohort by combining the actual monthly premiums; benefits, dividends, and expenses from ARCBase since inception (issue, transition, or purchase) with seriatim expected amounts from ARCVAL valuation and projection functionality to update the net premium benefit ratio and calculate the benefit reserve and related items. This reserve uses discount rates locked in at inception or at transition. This reserve is used for net income presentation.
A second reserve is then calculated using the net premium ratios above, but with discount rates set as of the valuation date. This second reserve is used for the balance sheet and other comprehensive income. This valuation process develops a suite of monthly and annual reports for each cohort: policy exhibit by count and face amount, premiums, contract benefits, commissions, expenses, benefit reserves, maintenance reserves, commission DAC, expense DAC, VOBA. Reports cover all historic and projected months tracking key metrics over time such as net premium ratios, amortization rates, mortality rates, lapse rates, and interest rates. The reserve and DAC reports include historic and projected roll-forwards for all months.
GAAP Long Duration Targeted Improvements
Datasheet for Traditional Life