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. Why does Frasier elicit fear in some reinsurance analysts? It is primarily due to the complexity of the calculation and the potential for errors. 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? Several factors must be taken into consideration when using the Frasier method. As with any premium rate calculation, all the necessary parameters should be outlined in the Treaty.
Here is a list of the factors to consider:
- Rate Table o Examples include the SOA 75–80, 2001 VBT or a company-specific table
- Minimum Rate per $1,000 (This typically runs between .12 or .15 (contagion factor)
- Premium Factors by Smoker Class or Band (if applicable)
- First Insured’s Information: (Gender, Issue Age, Smoker Type, Class Code, Mortality Rating, Temporary or Permanent Flat Extra)
- Seconds Insured’s Information: (Gender, Issue Age, Smoker Type, Class Code, Mortality Rating, Temporary or Permanent Flat Extra)
- How Uninsurable Lives Are Handled in the Calculation
- The Treatment of First Year Premium (Zero Premium vs. an 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 properly configured. Premium review testing will also confirm that administration is being properly done and that finances are accurate.
Hopefully, the Frasier method is 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 fear. In my next article, I will explain how to identify potential sources of error, comprehend the overall purpose of Frasier, and apply knowledge of reinsurance premium calculation. You'll be mastering the Frasier method in no time.
