Return to Homepage

AAPA 313 — Financial Aspects of Annuities

Course Type: Traditional Designation Course
Topics: Retirement & Annuities
Designations: AAPA
Language: English


AAPA 313 describes the process that financial services firms use to develop and design annuity products. This course also covers financial concepts important to annuities, such as risk and return in investments, various asset types, future and present values, techniques for testing annuity profitability, principles of annuity mortality, annuity reserves, and annuity expense charges.


  • Developing New Annuity Products
  • Technical Design of Annuities
  • Company Expenses in Annuity Design
  • Annuity Products and Mortality
  • Accumulation Value and Interest Earnings
  • Investing and Investments for Annuities
  • Time Value of Money and Future Values
  • Finding and Using Present Values
  • Annuity Reserves and Reserve Valuation
  • Risk Management and Annuities
  • Financial Modeling for Insurance Companies
  • Annuity Performance Measures
  • Product Testing with ExecuView

Chapter 1: Developing New Annuity Products

Annuity Types and Characteristics

Fixed Annuities

Variable Annuities

Hybrid Annuities

The Product Mix

Level of Innovation in New Products

Participants in Product Development

Actuarial Services



Contract Administration

Customer Service

Information Technology


Legal Services


Cross-Functional Assignments

Stages of Product Development

Comprehensive Business Analysis

Market Analysis

Product Design Objectives

Feasibility Study

Marketing Plan


Chapter 2: Technical Design of Annuities

Developing Contract Forms

Approaches to Annuity Financial Design

Elements of Annuity Financial Design

Company Expenses

Cost of Benefits



Annuity Design for the Accumulation Period

Actuarial Assumptions for Company Expenses and Investment Results

Actuarial Assumptions for the Cost of Benefits

How These Elements Form a Product Design

Actuarial Assumptions for Annuities in the Payout Period

Modeling and Testing Annuity Designs

Balance Sheet Format

Earnings Statement Format

New Product Budgeting and Scheduling

Product Introduction

Product Evaluation

Chapter 3: Company Expenses in Annuity Design

Overview of Company Expenses

Investment Expenses

General and Administrative Expenses

Expense Analysis

Controllable or Noncontrollable Costs

Direct Expenses

Indirect Expenses

Variable Expenses

Fixed Expenses

Unit Costs

Standard Costs

Cost Allocation in Annuity Design

Marginal Costing and Full Costing

Expense Assumptions and Margins

Provision for Surrenders and Withdrawals

Provision for Contingencies or Profits

Expense Control Strategies

Expense Charges in Deferred Annuities

Expense Charges in Fixed Annuities

Expense Charges in Variable Annuities

Chapter 4: Annuity Products and Mortality

Interpreting a Mortality Table

Calculating the Mortality Rate

Calculating the Survival Rate

Product-Differentiated Mortality Tables

Basic and Valuation Mortality Tables

Mortality Tables for Technical Product Design

Mortality Tables for Reserves

Sex-Distinct and Unisex Mortality Tables

Sex-Distinct Mortality Tables

Unisex Mortality Tables

Proprietary and Published Mortality Tables

Proprietary Mortality Tables

Published Mortality Tables

Modifying Tabular Mortality Rates

Projection Method

Setback Method

Mortality Rates and Annuity Conversion Costs

The Mortality Margin

Setting a Mortality Charge

Calculating the Mortality Cost for a Life Annuity

Chapter 5: Accumulation Value and Interest Earnings

Accumulation Values and Surrender Values in Deferred Annuities

Accumulation Value in Deferred Annuities

Surrender Provisions and Surrender Charges in Deferred Annuities

Accumulation Value of a Deferred Variable Annuity

Annuity Contract Innovations

Systematic Withdrawal Plans for Deferred Annuities

Commutation Rights for Immediate Annuities

Secondary Guarantees Under Variable Annuities

Investment Earnings and Annuity Growth

Fixed Deferred Annuity Contracts

Variable Annuity Contracts

Interest and Investment Growth

Calculating an Interest Amount Earned

Calculating an Interest Rate

Simple Interest, Compound Interest, Nominal Interest, and Effective Interest

Chapter 6: Investing and Investments for Annuities

Investment Concepts

Insurance Company Portfolios

The General Account Portfolio

The Separate Account Portfolio

Portfolio Management Concepts

Asset Classifications

Assets Held by Life Insurers




Policy Loans

Real Estate

Derivative Securities

Investment Returns Other Than Interest

Chapter 7: Time Value of Money and Future Values

Time Value of Money Calculations

The Role of Future Value in Insurance Companies

Estimating Future Investment Earnings

Estimating Future Operating Expenses

Estimating Future Adverse Outcomes or Profits

Investing Assets on Hand

Setting Reserve Amounts

Calculating Future Value

Future Value of a Single Amount

Future Value Interest Factors

Characteristics of FVIFs

Future Value of an Annuity

Time Line for an Ordinary Annuity

Time Line for an Annuity Due

Future Value Interest Factors for an Annuity

Using FVIFA Factors for Annuities Due

Chapter 8: Finding and Using Present Values

Present Value of a Single Amount for One Period

Present Value of a Single Amount for Two Periods

Present Value Interest Factors

Characteristics of PVIFs

Present Value of an Annuity

Present Value of an Ordinary Annuity

Present Value of an Annuity Due

Present Value Interest Factors for an Annuity

Calculating the Present Value of an Annuity Due

Using Present Value to Calculate Annuity Cost Factors

Measuring Product Profitability with Present Value

Cash Flows

Initial Investment

Interpreting Internal Rate of Return

Net Present Value Calculations

Profit Margin Calculations

Chapter 9: Annuity Reserves and Reserve Valuation

Contractual and Non-Contractual Reserves

Financial Reporting Systems

Conservatism in Annuity Reserves

Rules-Based and Principles-Based Approaches to Reserve Valuation

Rules (Deterministic) Basis for Valuation

Probabilistic (Stochastic) Basis for Valuation

Actuarial Assumptions and Annuity Reserves

Interest-Rate Assumptions in Reserves

Mortality-Rate Assumptions in Reserves

Deferred Acquisition Cost and Surplus Strain in GAAP Reserves

Reserve Valuation Methods

Net Reserves

Gross Reserves

Prospective Reserve Valuation

Retrospective Reserve Valuation

Annuity Reserves in the United States

GAAP Annuity Reserves

Statutory Annuity Reserves

Chapter 10: Risk Management and Annuities

General Approaches to Risk Management

Avoiding Risk

Controlling Risk

Accepting Risk

Transferring Risk

The Risk-Return Tradeoff

Investment Risks

Product Risks in Annuities

Contingency Risks for Insurers

Enterprise Risk Management for Insurance Companies

Critical Components of an ERM Program

A Risk Control Process for ERM

Overview of Asset-Liability Management

Reporting for Asset-Liability Management

External ALM Reports

Internal ALM Reports

The Challenge of Interest Rate Fluctuations

Effects of Decreasing Market Interest Rates

Effects of Increasing Market Interest Rates

Managing Credit Risk and Market Risk

Managing Risks in Annuity Products

Chapter 11: Financial Modeling for Insurance Companies

Sensitivity Analysis and Scenarios

Point Estimates and Range Estimates

Deterministic and Stochastic Approaches

Data Quality for Financial Modeling

Experience Data as a Basis for Assumptions

Applications of Financial Modeling

Asset Adequacy Analysis and Cash Flow Testing

Capital Adequacy Analysis and Dynamic Solvency Testing

Optimization Modeling

Chapter 12: Annuity Performance Measures

Overview of Asset-Share Models

Overview of Assumptions in Asset-Share Models

Payback Period

Payback Period Calculations

Payback Period for a Fixed Annuity with Level Annual Cash Inflows

Payback Period for a Variable Annuity with Mixed Annual Cash Inflows

Breakeven Period

Procedure for Finding a Product’s Asset Share

Find the Total Fund for Year 1

Find the Total Fund for Years after Year 1

Find the Asset Share per $1,000

Compare the Asset Share to the Reserve

Find the Breakeven Year and the Breakeven Period

Other Performance Measures

Assumptions Used in Product Models

User-Defined Assumptions for Annuity Products

Market Interest Rates

Interest Margin


Commission Rates

Lapse Rates

Fixed Assumptions for Annuity Products

Gross Premium

Basic Product Features

Reserve Valuation Method

Cash Value Accumulation Method

Chapter 13: Product Testing with ExecuView

Structure of the ExecuView Models

ExecuView’s Single Premium Deferred Annuity

ExecuView’s Single Premium Immediate Annuity

ExecuView’s Aggregate Model

Changing User-Defined Assumptions in ExecuView

Changes in Interest Margin

Changes in Interest Rates

Changes in Mortality Rates

Changes in Expense Assumptions

Changes in Commission Rates

Changes in Lapse Rates

Changes in Multiple Assumptions

Experimenting with Interest Margin

Experimenting with Mortality and Lapse Rates

Adjusting to Meet Profit Objectives



Course Format

AAPA 313 will be offered only through the end of 2015.

Study materials include print textbooks and Test Preparation Guides (TPGs) with printed and electronic versions of the course's Practice Questions and Sample Exam. Enrollment for an I*STAR, Prometric or Paper exam is purchased separately through LOMANET.

Exam Format

The AAPA 313 exam has 50 questions and a time limit of 2 hours. The exam is available in I*STAR and Prometric only.

Study Materials

Financial Aspects of Annuities, Second Edition (LOMA, 2007)
ISBN 1-57974-307-2
PBD Order # 313-10-07

Test Preparation Guide for AAPA 313 (LOMA, 2007)
ISBN 1-57974-308-0
PBD Order # 313-40-07

Ordering printed study materials

For the United States and Canada, you can order study materials for designation courses through PBD by using the form and information below:


PBD Worldwide
P.O. Box 930108
Atlanta, Georgia 31193-0108
Tel: 1-800-887-3723 or 770-280-4178
Fax: 770-280-4150

Additional textbook order forms

Forms include applicable mailing and contact information


Note: Most of the courses require a textbook and a Test Preparation Guide (TPG). Be sure to order all assigned materials as listed in the Education and Training Catalog. Students are responsible for ordering the correct study materials.

How to Enroll

Traditional Course Access

LOMA's traditional-access designation courses teach industry topics using printed study materials and proctored examinations. Study materials include print textbooks and Test Preparation Guides (TPGs) with printed and electronic versions of the course's Practice Questions and Sample Exam. Enrollment for an I*STAR, Prometric or Paper exam is purchased separately through LOMANET.

Retirement Events