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Future Mortality Improvement ScaleDevelopment (VM-20)LATF Update #2Mortality Improvements Life Work Group (MILWG), theAcademy’s Life Experience Committee and the SOA’s PreferredMortality Project Oversight Group (“Joint Committee”) 2022 American Academy of Actuaries. All rights reserved. 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission.Life Actuarial Task Force (LATF) Meeting—June 23, 2022

Agenda 2Items to be addressed in the 2022 scale recommendationUPDATE: COVID-19 approachNext steps/discussion 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Items to be addressed in 2022 scale recommendationDevelop Historical Mortality Improvement (HMI) and FMI FutureMortality Improvement (FMI) scales for use in 2022 valuationyear.The 2022 scales will address the following: 3Reflecting COVID-19 impactsReview of margin developmentReview of smoothing method 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Approach to COVID-19 impactExample: Male Age 45—SSA Mortality Ratesw/ HMI estimates and FMI estimates and Expected Recommendation* *HMI-1, FMI-1 scenario, explained on p. 5 HMI-2, FMI-1 scenario, explained on p. 54 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

COVID-19 Impact— FMI/HMI Model -0FMI-1FMI-2Historical MI—Scenarios being assessedNo HMI10-year historical average ending in 202010-year historical average ending in 20199-year historical average ending in 201910-year historical average ending in 2020Description/Notesused with FMI-0 to determine baseline for comparisonincludes full deterioration effect of 2020 COVID-19 (most conservative line on slide 4)exclude 2020 COVID-19 shock (most optimistic line on slide 4)exclude 2020 COVID-19 shock (intermediate)exclude 2020 COVID-19 shock by assuming zero improvement from 2019 to 2020 (intermediate)Future MI—Scenarios being assessedDescriptionNo FMIused with HMI-0 to determine baseline for comparisonBasic FMI scale Use grading to Long Term (LT) averageLoaded Mortality Improvement (MI) scale Basic FMI with explicit margin for uncertainty around the futurebased on SSA Alt 2 with margin approach #1 (recommendedtrend ( 25% reduction of Basic FMI rates in all years)method)Loaded MI scale FMI Basic with explicit margin for uncertainty in future trend( 25% reduction of Basic FMI rates in all years)andBasic FMI scale Use grading to LT average based on SSA Alt an additional explicit margin for uncertainty around the COVID-19 medium-/long-term impacts that gradesoff over time.2 with margin approach #2Additional COVID-19 explicit margin:50% margin in 2023 grades to margin of 25% over 5 years.5 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Reserve Impact - NAIC Model Office Universal Life with Secondary Guarantees (ULSG) focus—long-durationproduct, larger potential for reserve reduction 6Model office and assumptions same as used in the yearly renewable term (YRT)representative model analysis Lifetime shadow account secondary guarantee No reinsurance in the modelCombined model office 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Reserve Impact Results7 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Next Steps 8Review of smoothing methodReview approach for MI rates near 0Finalize margin methodologyMargin and smoothing recommendation to bepresented to LATF on 7/7/22 call 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Questions?9 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Contact InformationMarianne Purushotham, FSA,MAAACorporate Vice President, Research Data ServicesLLGlobalmpurushotham@limra.comAmanda Barry-MoilanenLife Policy AnalystAmerican Academy of Actuariesbarrymoilanen@actuary.org 2022 American Academy of Actuaries. All rights reserved. 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission.

Appendix 1RECAP:Slides from LATF UPDATE #16/2/2211 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Approach to COVID-19 impact Quantification of COVID-19 impact Data sources Short- vs. medium- vs. longer-term impacts 12 Implicit margins in MI scale development Return to previously projected mortalitylevel over time or residual excess mortalityInsured vs. general populationconsiderations Data source—general population dataunadjusted for insured populationdifferences (largest source of margin) Starting MI level (HMI) Long-term rate (FMI)Limit on FMI assumption (20 years)Direct adjustment to MI rates or reflectedin additional margins 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Approach to COVID-19 impactExample: Male Age 45—Social Security Administration (SSA) Mortality Rates—Pre-COVID-1913 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Approach to COVID-19 impactExample: Male Age 45—SSA Mortality Ratesw/ HMI estimates both including and excluding 2020 COVID-19 impact in data14 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Approach to COVID-19 impactExample: Male Age 45—SSA Mortality Ratesw/ HMI estimates and FMI estimates15 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Approach to COVID-19 impactExample: Male Age 45—SSA Mortality Ratesw/ HMI estimates and FMI estimates and Expected Recommendation16 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

COVID-19 Impact—Modeling ScenariosHistorical MI—Scenarios being assessedDescription1. 10-year historical average ending in 2020including full deterioration for 2020 (most conservative)2. 10-year historical average ending in 2019exclude COVID-19 shock impact in 2020 (most optimistic)3. 9-year historical average ending in 2019exclude COVID-19 shock impact in 2020 (alternate)4. 10-year historical average ending in 2020 (assuming no improvement from 2019 to 2020)muted impact of 2020 (intermediate)Future MI—Scenarios being assessedDescription1. Basic FMI scale Use grading to LT average based on SSA Alt 2 (recommended method)Loaded MI scale Basic plus explicit margin for uncertainty around the future trend( 25% reduction of Basic FMI rates in all years)2. Basic FMI scale Use grading to LT average based on SSA Alt 2 (recommended method)17 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission.Loaded MI scale Basic plus explicit margin for uncertainty in future trend ( 25%reduction of Basic FMI rates in all years) and an additional explicit margin foruncertainty around the COVID-19 medium-/long-term impacts that grades off overtime.Additional COVID-19 explicit margin—options for model testing:1. 50% margin grades to normal margin of 25% over 5 years.2. Decrease mortality improvement by 1% in year 1 grading linearly down to 0% inyear 5. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

2022 MI scale development timeline (VM-20)Updated May 2022Milestones1. Receive 2020 data from the Centers for Medicare and Medicaid Services (CMS). SOA createspreliminary mortality estimates for 2020.2. Identify options for reflecting COVID-19 impact on HMI and FMI scale recommendations includingmargin.3. Assess reserve impact of COVID-19 adjustment recommendation—run National Association ofInsurance Commissioners (NAIC) model office under several scenarios.4. Determine smoothing method for FMI and HMI scales.5. Receive SSA Trustees Report—Intermediate Projections for 2022.7. Finalize recommendation for reflecting COVID-19 based on NAIC model office results.8. Present to LATF for approval for exposure (LATF call in early July). Assumes 60-day exposure period.9. Update SSA mortality estimates for 2020 from SOA (final SOA estimates).10. Respond to exposure comments obtain LATF approval of 2022 HMI and FMI.11. Publish 2022 HMI and FMI scales on SOA website.18 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission.Target Date2/28/2022 (completed)4/28/2022 (completed)5/15/2022 (in progress)6/15/2022 (in progress)Est. 022 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Appendix 2NAIC Model Office:Background Information19 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

FMI - Reserve Impact EstimatesNAIC Model Office 20Universal Life with Secondary Guarantees (ULSG) focus—long-durationproduct, larger potential for reserve reduction Model office and assumptions same as used in the YRT representative model analysis Lifetime shadow account secondary guarantee No reinsurance in the modelCombined model office 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission. 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.

Reserve Impact EstimatesFuture Mortality Improvement Assumption Model Implementation 21The 2021 and prior versions of VM-20 prohibitedincluding FMI in the calculation of deterministic andstochastic reserves, while allowing the mortalityassumption to be improved up to the valuation dateusing a historical mortality improvement (HMI)assumption developed by the MILWGAn “exact” approach to including FMI in the calculationof deterministic and stochastic reserves would utilizethe MILWG’s HMI assumption to bring the mortalitytable up to the valuation date and then apply theseparate FMI assumptions beyond the valuation date 2022 Society of Actuaries. All rights reserved.May not be reproduced without express permission.Historical mortality improvement(HMI) application period for 2015 VBTand a 12/31/2020 valuation date7/1/201512/31/2020Applicable datefrom which to startapplying HMI for2015 VBTHMI is allowedto be appliedup to thecurrentvaluation date 2022 American Academy of Actuaries. All rights reserved.May not be reproduced without express permission.