Group Term Stem 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Short-Term Treasury Bills 8.1% 8.8% 6.3% 2.8% 1.3% 1.8% 4.3% 6.8% 5.0% 3.8% Long-Term Treasury Bond 13.2% 7.2% 11.5% 2.4% 3.5% 2.7% 3.5% 8.7% 12.4% -2.2% Long-Term Corporate Bond 9.1% 10.3% 10.1% 8.2% 5.4% 1.7% 4.3% 4.6% -4.9% 18.7% Stocks -1.1% -3.9% -14.1% 36.7% 18.9% 12.9% 23.8% 13.5% -29.0% 34.5% Commodities 49.7% -31.9% 32.1% 20.7% 17.3% 25.6% -15.1% 32.7% -46.5% 13.5% Cumulative Min Simple Avg Geometric Avg Max St Deviation Question: Up until this point management has wanted you to use a 3.0% investment income rate. However, because investment income plays an important role, you want to explore it in more depth. Using the historic data for different asset classes, recommend an investment strategy and investment income rate assumption. Background: You work for Sensible Insurance Company, a mid-sized insurance company whose core product is group term life. Sensible aims to grow and is trying to gain Mammoth Mart as a client. Mammoth Mart is a large employer in the U.S., and its addition will almost double the number of insured lives Sensible covers. Sensible operates in all states in the U.S., but focuses on small to medium sized businesses concentrated in the Eastern U.S. Its current book of business has an average occupation mix of 20% blue-collar/80% white-collar. The average case size is 81 lives with no single group comprising more than 2% of the insured lives. The CFO of Sensible is concerned that it may be growing too fast and has asked you to analyze the effect of adding Mammoth Mart as a client. You know the following information about Mammoth Mart: 1. It has offices nationwide with over 500,000 employees. 2. Approximately 60% of the employees are blue-collar, with the remainder being white-collar. 3. As of today, all of its locations are in the U.S., but it is considering opening some Canadian locations in the next year or two. 4. It is using a broker to negotiate prices and benefits with insurers. Mammoth Mart wants a simple plan for its employees--all of them will be covered, and the face amount will equal the employee’s annual salary. However, instead of a typical one-year rate guarantee contract with premiums paid monthly, Mammoth Mart would like a three-year rate guarantee on the premium. It will pay the entire three years’ premium up-front based on its current workforce and salaries, with monthly adjustments based on increases or decreases to the covered salary amount. Ideally, for such a large group we would want to use Mammoth Mart’s own experience to develop a rate, but this is the first time it has sought life insurance coverage. Therefore Sensible’s rate manual needs to be used. 5/4/2019 -- 12:11 PM 2015061218194220150604011435help.xlsx