Value of Insurance Contracts

[AndyH]

Underfunded DB plan with only 2 participants with benefits is being terminated. Assets include individual annuity contracts in the name of each participant from 3 insurers (6 contracts total). Contracts will be distributed in-kind (presumably). Plan sponsor will fund liabilities less assets but is struggling for money. No majority owners exist, so no waiver is possible. How should the insurance contracts be valued, at "accumulation value" or "cash surrender value"? Differences in values are not huge - 5% to 7%.

Obviously I cannot provide all the details of the contracts. Just looking for comments/observations/opinions. Thanks.

[SoCalActuary]

I would go with the accumulation value.

[Bird]

Technically I think you should use the interpolated terminal reserve, which is going to generally be close to the surrender value.

[AndyH]

Thanks for the comments.

Bird, you think this would be true even with an annuity without a life insurance feature? I see all kinds of stuff about that within the context of a life insurance policy. But you think it's the same with an annuity?

[Bird]

Bird, you think this would be true even with an annuity without a life insurance feature? I see all kinds of stuff about that within the context of a life insurance policy. But you think it's the same with an annuity?

I don't have a cite but I am pretty confident that it is the same. Accumulation value really means nothing whatsoever for valuation purposes - it's simply a number that is used for interest crediting purposes (and to make things look a little better to the buyer). The only time the accumulation value would actually be paid is in the event of death...I suppose you could factor that in to determine "fair market value" and nudge the surrender value up ever so slightly, at least in theory.