Standard Format for Viability Study for Pre-Need Plans

March 8, 2016 INSURANCE CIRCULAR LETTER NO. 012-16 Supersedes: None TO : All Pre-Need Companies Doing Business in the Philippines SUBJECT : Standard Format for Viability Study for Pre-Need Plans To facilitate the evaluation and approval of Memorial, Pension and Education Pre-Need Products, pre-need companies shall use the attached standard format for viability study. This Circular takes effect immediately. For strict compliance. (SGD.) EMMANUEL F. DOOC Insurance Commissioner ATTACHMENT Viability Analysis Standard Format (Pension, Education and Memorial Plans) Common Input Data [i] Average Benefit Unit Input [ii] Initial Benefit per Unit Input [iii] % Yearly Increase in Benefit (as % of Initial Benefit) Input [iv] Maturity Value per Unit Input [v] Memorial Benefit per Unit Input [vi] Assumed Volume of Business (count) Input [vii] No. of Years to Pay Input [viii] Term Input [ix] New Issue Fee Input [x] Reinstatement Fee Input [xi] Contract Price per Unit Input [xii] Annual Installment per Unit Input [xiii] Dividends per Unit Input [xiv] IC Filing Fee rate (applied to Contract Price) Input [xv] Documentary Stamp Tax Rate (applied to annual installment) Input [xvi] Income Tax Rate Input [xvii] VAT Input [xviii] Local Government Tax (applied to annual installment) Input Yearly Input Data [A] Trust Fund Contribution Rate Input [B] Commissions Input [C] Overrides Input [D] Marketing and Other Costs (as % of annual installment) Input [E] Marketing and Other Costs (fixed) Input [F] Availment Rate Input [G] Surrender Rate Input [H] Reinstatement Rate Input [I] Termination Value per Unit Input [J] Credit life and Disability Premium per 1000 of amount insured Input [K] Group Term Life Premium per 1000 of amount insured Input [L] Overhead or Administrative Costs (as % of annual installment) Input [M] Overhead or Administrative Costs (fixed) Input [N] Surrender Processing Expense, per contract surrendered Input [O] Maturity Expense, per contract matured Input [P] Insurance Premium Reserve Factor per Unit Input [Q] Supplemental Reserve per Unit Input [R] Actuarial Reserve Liability Factor per Unit Input [S] Valuation Interest Rate Input [T] Annual Interest Rate (for Trust Fund) Input [U] Annual Interest Rate (for Other Assets) Input [V] Remaining Business Input Sample Income Statement for a Sample Block of Policies [1] Income [2] + [3] + [6] [2] cfb Gross Revenue [i] x [vi] x [xii]) x Prev [V] [3] Other Income [4] + [5] [4] cfb New issue Fee [vi] x [ix] (first year only) [5] cfb Reinstatement Fee [vi] x [x] x [H] [6] Investment Income [7] + [8] [7] cfe Trust Fund Income [68] [8] cfe Other Investment Interest Income [72] [9] Operating Expenses [10] + [15] + [16] + [17] + [18] + [19] + [20] + [21] + [22] + [26] + [27] + [28] + [29] + [30] [10] Plan Benefits [11] + [12] + [13] + [14] [11] cfe Matured Benefits [i] x [V] x [vi] x {[iv] (if lump sum)} OR {[ii] x (1 + [iii]) ^ (Current Duration - Initial Duration)} [12] cfb Surrender Benefits ([i] x [vi]) x ([G] x [I]) x Prev[V] [13] cfe Memorial Benefits ([i] x [vi]) x ([F] x [v]) x Prev[V] [14] cfe Dividends * [i] x [V] x [xiii] x [vi] (at maturity) [15] Increase/Decrease in Actuarial Reserves [38] - Prev[38] [16] Increase/Decrease in Supplemental Reserves [39] - Prev[39] [17] Increase/Decrease in Insurance Premium Reserves [40] - Prev[40] [18] cfb CGL/WPD Premium MAX {0, [J] x [2] x ([vii] - PY)/1000} [19] cfb GT/GADD Premium ** ([i] x [vi] x [xi]) x Prev[V] x [K]/ 1000) [20] cfb Surrender Processing Expense *** [vi] x [N] x Prev[V] x [G] [21] cfe Maturity Processing Expense [vi] x [O] x [V] [22] Direct Costs [23] + [24] [23] cfb Commission [2] x [B] [24] cfb Overrides [2] x [C] (if as % of RGI) OR [23] x [C] (if as % of Commissions) [25] cfb Marketing and Other Costs [2] x [D] + ([vi] x Prev[V] x [E]) [26] cfb VAT [2] x (1 - [A]) x [xvii]/(1 + [xvii]) [27] cfb Local Government Tax [2] x [xviii] [28] cfb IC Registration Fees [i] x [vi] x [xi] x [xiv] [29] cfb Documentary Stamp Tax [2] x [xv] [30] cfb General Administration Expense [2] x [L] + ([vi] x Prev[V] x [M]) [31] Taxable Income [1] - [9] [32] cfe Income Tax Provision **** [31] x [xvi] OR MCIT whichever is applicable [33] Net Income [31] - [32] SAMPLE BALANCED SHEET for a sample block of policies [34] Assets [35] + [36] [35] Trust Fund [69] [36] Other Assets [73] [37] Liabilities [38] + [39] + [40] [38] Actuarial Reserve Liability for Basic Benefits [i] x [vi] x [R] x Prev[V] - [11] [39] Supplemental Reserves [i] x [vi] x [Q] x Prev[V] [40] Insurance Premium Reserve [i] x [vi] x [P] x Prev[V] [41] Surplus/Retained Earnings [34] - [37] [42] Present Value of Final Retained Earnings last[41] x last[45] [43] Sum Present Value of Premiums over the term [52] [44] Profit Margin [42]/[43] Analysis of Profit [45] Discount Rate Prev[45]/(1+ [S]) [46] Profits [33] [47] Cumulative Profits Prev[47] + [46] [48] Present Value of Cumulative Profits [47] x [45] [49] Present Value of Premiums Prev[45] x [2] [50] Sum Present Value of Premiums Prev[50] + [49] [51] Present Value of Cumulative Profits last[48] [52] Sum Present Value of Premiums over the term last[50] [53] Profit Margin [51]/[52] [54] Breakeven start of positive [47] Analysis of Cash Flow Cash Flow from Operation [55] Cash Flow Additions (beginning of year) [2] + [3] [56] Cash Flow Additions (end of year) None [57] Cash Flow Deductions (beginning of year) [12] + [18] + [19] + [20] + [22] + [26] + [27] + [28] + [29] + [30] [58] Cash Flow Deductions (end of year) [11] + [13] + [14] + [21] + [32] [59] Net Cash Flow (beginning of year) [55] - [57] [60] Net Cash Flow (end of year) [56] - [58] CASH Flow from INVESTMENTS [61] Interest Earned by Trust Fund [68] [62] Interest Earned by Other Assets [72] [63] Net Cash Flow [59] + [60] + [61] + [62] [64] Cumulative Cash Flow Prev[64] + [63] ANALYSIS of Asset Accumulation Schedule of Assets Accumulation of Trust Fund [65] Contribution to Trust Fund [A] x [2] [66] Withdrawals from the Trust Fund (beginning of year) [12] [67] Withdrawals from the Trust Fund (end of year) [11] + [13] + [14] [68] Interest Earned by Trust Fund (net of Investment Expenses and charges) ([65] + Prev[69] - [66]) x [T] [69] Trust Fund Balance [65] - [66] - [67] + [68] + Prev[69] Accumulation of Other Assets (after contribution to Trust Fund) [70] Net Cash Flow (beginning of year) [59] - ([65] - [66]) [71] Net Cash Flow (end of year) [60] + [67] [72] Interest Earned by Other Assets ([70] + Prev[73]) x [U] [73] Balance Prev[73] + [70] + [71] + [72] Notes: * Dividend is assumed to be payable at the end of the term of the plan. ** GT Coverage is assumed to be equal to the Contract Price. *** Surrender is assumed to occur at the beginning of the year. **** MCIT refers to "Minimum Corporate Income Tax"