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How to Master the Frasier Method (for reinsurance analysts)

April 26, 2017 / Reinsurance, Reinsurance Analyst

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Growing up did you ever have a fear of something? Maybe it was the boogie monster under your bed, or a scary character from a movie – maybe it was even something your parents always said when you got in trouble. Was there one word, sound or action that always reminded you of this fear? My sister and I always knew we were in trouble whenever we heard the following words from our mother ‘girls, front and center!’. Every parent has their way!

But then you grow up and realize the monster under the bed was just in your imagination, the scary movie character was just that, a character and your parents – well let’s just say you mastered the art of getting out of trouble! Essentially, you conquered your fear by understanding it. So how does this relate to reinsurance?

Well if you are wondering how to strike fear during a reinsurance premium review: mention the word “Frasier”.

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The Frasier Method is a statistical model used to calculate the premium rate for a Second to Die Joint Universal Life Policy.  This method takes the characteristics of each insured and calculates a single premium rate for each duration. So, why does Frasier elicit feelings of fear in some reinsurance analysts? It is primarily because of the complexity of the calculation and the potential for errors. But fear not, I'm breaking down below what you need to know to master the Frasier Method, for good.

What factors do you need to consider when using the Frasier Method?

There are several factors which need to be taken in consideration when utilizing the Frasier method.  As with any premium rate calculation all the necessary parameters should be outlined in the Treaty.Here are a list of the factors to consider:

  1. Rate Table
    • Examples include: The SOA 75-80, or 2001 VBT or a company specific table
  2. Minimum Rate per $1,000
    • This typically runs between .12 or .15 (contagion factor)
  3. Premium Factors by Smoker Class or Band (If applicable)
  4. First Insured’s Information:
    • Gender
    • Issue Age
    • Smoker Type
    • Class Code
    • Mortality Rating
    • Temporary or Permanent Flat Extra
  5. Seconds Insured’s Information:
    • Gender
    • Issue Age
    • Smoker Type
    • Class Code
    • Mortality Rating
    • Temporary or Permanent Flat Extra
  6. How uninsurable lives are handled in the calculation
  7.  The treatment of first year premium (Zero premium vs allowance of 100%)

When do analysts commonly notice Frasier errors?

Frasier errors most often come to light during a treaty review.  Validating the system treaty set-up to the paper treaty will ensure that all parameters have been configured properly.  In addition, premium review testing will confirm that administration is being done properly and that the financials are accurate. 

Hopefully the Frasier method is becoming a little less scary now that you know which factors to consider when using it. Breaking down the method into individual steps and understanding how the insured’s information affects the calculation is the first phase in conquering the fear.  In my next blog, I'll explain how to identify potential sources of error, comprehending the overall purpose of Frasier and applying knowledge of reinsurance premium calculation. You'll be mastering the Frasier method in no time. 

In the meantime, catch up on 3 common issues that cause treaty errors:

Written by
Mindy Epstein