Preparing to Use EBS

The Earnings by Source modules allow you to run Calendar Year Reports of projected earnings that include additional report lines providing a detailed analysis of profit before income tax.  These reports can be generated by the same business models used to drive valuation or planning work, with some minor extensions.

Traditional vs. Fund based Analysis

Two approaches to the analysis of earnings are available, depending on whether the business being modelled is traditional in structure (Regular, Par, DI and Payout phase Annuity modules) or is a flexible, fund based product (UL module and Accumulation phase Annuity module).

The Traditional Product approach to EBS analysis compares actual benefit or revenue experience for each component to the expected cashflow and/or expected release of reserve for that component as contemplated in the reserve established at the beginning of the period.  Since the product structure is fixed for each policy in force, benefit and revenue patterns are predictable based purely on survivorship experience.  For the DI module, the expected experience is derived from both the active life reserves and disabled life claim reserves.  

For Fund based products, the analysis has to allow for the much greater flexibility of the products and the unbundling of the various charges and experience assumptions.  In particular, the change in reserve is subdivided by the change in fund vs. the change in the remaining actuarial reserve, reflecting the present value of future profits or losses.  The various components of earnings are designed to reveal the profit emerging from the ongoing experience in the actual vs. expected profit margins realized in each fund element, as well as the change in the present value of future margins.  

Prospective Earnings Analysis

You may run Projections and produce EBS reports on a purely prospective basis (except in the Disability module) starting from the current Valuation date and basing sources of earnings on the difference between the Pricing (Plan) assumptions and Statutory valuation assumptions as defined for the reserve valuation method.  This approach may incorporate either Volumes Table or seriatim definitions of in force and projected new business, as no actual transaction experience data is used.

Since no actual transaction data is required, the only special data requirements are the New Business definition and the specification of the valuation expected assumptions in each cell, so that the PFAD components of earnings can be obtained.

Historical Earnings Analysis

You may also run Projections and produce EBS reports on a combination of historical and future perspectives, by providing a seriatim in force file reflecting the business in force at the beginning of the financial period to be analyzed, along with actual seriatim new business and actual termination information.  If a Fund based product approach is involved, policy movement data must be further supplemented by Fund movement transaction data, and additional policy and fund balance inforce data at reporting dates subsequent to the start date of the EBS period.  Consequently the Historical Earnings analysis will involve somewhat more up-front data preparation than the prospective approach, as discussed below.

When actual transactions are included as part of the seriatim data generated and attached to the cells by DataLink, you will also define the ending date of the period for which actual transactions are known, usually by using the Status Date of the Source File used to load the Policy Movement Transactions Table.  AXIS will automatically suppress the projection of all terminations other than the "actual" terminations specified in the seriatim data during this period, but will reapply the Pricing assumptions for all terminations for the portion of the Calendar Year Projections beyond this period, if any (except in the Disability module, where only historical EBS analysis is supported at the present time).  You may also choose to use a transaction cut-off date earlier than specified by the Status Date defined in DataLink, using the options on the EBS Tab of the Dataset Parameters Form.  Thus, the total calendar period during which actual and expected earnings are compared can be years in length.

When analyzing business modelled in the UL module using the Fund based approach, seriatim fund related data must also be entered to reveal details of the actual fund movement over the period of analysis compared to the projected fund growth incorporated in the opening reserve calculations.  This data can include a mix of inforce fund balance records at the ending and one or more intervening reporting dates, as well as significant fund transaction data, such as premium deposits and partial withdrawals.  All such fund data can include Investment Account detail and when guaranteed deposit accounts are involved, deposit detail can also be provided. 

The following picture illustrates an EBS projection in which actual historical transaction data is used for the four quarters of the 2001 financial year, after which plan assumptions are used to determine survivorship experience.  Note that both the Inforce Date of the starting seriatim file and the Valuation Date selected in AXIS will be December 31, 2000, in this example.

In order to project the inforce file forward in time, actual seriatim new business records must be added to the valuation inforce at the beginning of the period.  This seriatim new business is defined and loaded in the same amount of detail and using the same procedures as the inforce.  You may be able to extract the new business from the administrative inforce files at the end of the period at the same time as extracting the valuation inforce file at that date.  For accurate earnings projection, however, you must also be sure to include or approximate the new issues during the period that terminated before the end of the period.

Beyond this new business file, the only additional data required to run the Traditional EBS reports using the historical perspective is the seriatim transaction file that will identify the terminating policies with the dates and cause of termination.  Otherwise, Traditional EBS reports can be based on the same AXIS datasets and business models used for valuation and financial planning purposes.  Fund based EBS reports can also be based on the same AXIS datasets and business models used for valuation and financial planning purposes, but there will likely be a more significant effort required to provide the additional actual fund movement data for the period of analysis.

Steps in Implementing EBS Reporting

If you are investigating the EBS module for evaluation purposes, or preparing to implement EBS reports, here are the typical steps you may wish to follow:

1.  Review Requirements and Limitations - read this Users Guide documentation to understand any special requirements, and the limitations in the EBS functionality that may apply to you.  Note the modules that are currently released, or in Beta, and contact GGY to discuss any questions and to arrange an overview/demonstration of the EBS functionality.

2.  Obtain EBS License or Trial Agreement - Contact Bill Young to obtain license authority for the appropriate EBS modules.  This may require downloading a new release of AXIS, or obtaining a patch file to enable access to an existing release.

3.  Review the EBS DEMO dataset - After installing a version of AXIS with your EBS license, download from our website a backup of our Dataset EBS DEMO, which provides an example of an EBS application.  Restore and use this dataset to review each of the interface and set-up issues discussed below.

4.  Select EBS Reporting period - You should decide on the length of the EBS Reporting period and choose settings for other parameters as detailed in Choosing an EBS Reporting Period and Setting EBS Parameters.   Prepare an existing application to be modified for EBS by restoring it, testing it, and then making the appropriate Parameter selections.  Test it prospectively to verify EBS reporting lines are available to you.

5.  Prepare Policy Movement Transaction Data - After reviewing the need for New Issues, Terminations and other transaction data, prepare the appropriate source files and DataLink applications to load them into your existing AXIS model.  Be sure to match Policy ID field contents exactly between Policy Information and Policy Movement transaction tables in DataLink.

6.  Reconcile Inforce business volumes and counts - Using Vendor supplied reports, or custom reports using policy movement lines, reconcile the inforce volumes (and reserves, for Traditional products) calculated at the start and end of the period to historically reported values.  Identify and correct for any inconsistencies.

TIP:  Reconcile the ending Inforce - If you are developing a working application of EBS, you will want to reconcile the ending Inforce as projected by AXIS with your actual inforce.  Discrepancies will reflect terminations and other transactions that are not reflected properly in your transaction file.  Transactions like policy changes, NTU's, reinstatements may need to be considered.  Reconciling the inforce movement to an acceptable tolerance is an important first step to reconciling the actual earnings for the period as projected by AXIS.

7.  Prepare Fund Movement Transaction and additional Future Fund Balance data (Fund based approach only) -  After reviewing the possible contents of fund related supplementary tables, prepare the appropriate source files and DataLink applications to add actual Fund movement experience data into your existing AXIS UL model.  Again, be sure to match Policy ID field contents exactly between Policy Information and Fund related supplementary tables in DataLink.

8.  Reconcile Inforce Fund Balances (Fund based approach only) - Using Vendor supplied reports, or custom reports using Fund reconciliation lines, reconcile the inforce fund amounts by investment accounts and the total reserves calculated at the start and end of the period to historically reported values.  Identify and correct for any inconsistencies.

9.  Run EBS earnings reports for individual cells, or the whole model.  Use individual records which survive the period or which terminate to understand their impact on earnings and on the EBS reports.  Examine online Help or available technical specification documents for explanation of the contents of specific report lines.

10.  Develop Custom Reports - The vendor-supplied EBS Reports are just starting points.  Use the custom reporting features to build your own reports to emphasize the details that are important, or for testing and reconciliation purposes,  and use line titles consistent with your company practice.  Identify elements of total reported earnings that do not reflect total actual experience and make aggregate adjustments to the AXIS Earnings Analysis as necessary (actual expenses, interest earned, taxes, etc.)