Case Study · Model Validation
IUL Crediting Review
Fixed and indexed crediting across seven Prophet modeling bases
Engagement at a glance
- Situation
- An insurer needed a clear view of IUL crediting across seven modeling bases.
- Work
- We reviewed actuarial methods, compared assumptions and product features, and independently checked selected calculations.
- Value
- The insurer received an explanation of the differences between bases and what they meant for model consistency.
Graeme Group reviewed fixed and indexed IUL crediting across seven Prophet modeling bases and independently checked selected calculations.
The actuarial challenge
A US life insurer needed a clearer understanding of how its indexed universal life (IUL) models determined credited interest across different valuation and business uses. The review covered seven modeling bases spanning statutory reserves, cash-flow testing, economic valuation, GAAP / LDTI, Forecast and Pricing.
Similar product features can be represented differently across modeling bases because their purposes, assumptions and approximations differ. We examined those differences and their effect on credited interest.
Actuarial methodology reviewed
Fixed-account crediting
We examined how investment returns, crediting spreads, investment expenses and guaranteed minimum rates combined to determine credited interest.
We distinguished asset-return assumptions from policyholder crediting assumptions and checked whether adjustments were included in the source inputs or applied within the calculation.
Indexed-account crediting
We reviewed participation rates, caps, floors, option budgets and crediting periods, comparing their treatment in the model with the product terms.
We reviewed the methodology and tested selected calculations separately. The review examined the role of features such as caps and option budgets; the calculation checks tested whether the model applied its inputs correctly.
Timing and account-value effects
We reviewed the timing of assumption updates, rate conversions between periods and the recognition of credited interest in account values. These conventions can produce different results even when the main assumptions appear similar.
Comparison across modeling bases
We compared the seven modeling bases using the same set of actuarial questions: return assumptions, expenses and spreads, guarantees, index-linked features and timing.
We identified differences arising from the purpose of each basis and those requiring further explanation. Different bases need not produce the same credited rate, but the reasons for the differences should be understood.
Independent calculation checks
Selected fixed and indexed crediting calculations were reproduced outside Prophet and compared with observed model results. Testing examined intermediate calculation steps as well as final rates, helping to explain how the supplied assumptions translated into credited interest.
We checked differences using the underlying numerical values, not just the rounded figures displayed by the model. We also distinguished the choice of an assumption from whether the model applied it correctly.
Value of the review
The review explained how the IUL crediting methods differed across bases, supported by selected independent calculation checks. It helped the insurer assess consistency and identify opportunities to simplify the implementation.