Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Insurance
Reexamination Certificate
1998-01-07
2001-12-11
Hafiz, Tariq R. (Department: 2163)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Insurance
C705S03600T
Reexamination Certificate
active
06330541
ABSTRACT:
BACKGROUND OF THE INVENTION
The present invention is directed to a system and method for controlling and securitizing the cash value growth and/or death benefits of a large group of insurance policies and, in particular, to a system and method that monitors death rates and interest rates in a large pool of policies and adjusts premium rates and death benefit levels in order to control cash value growth in the pool of policies and to generate cash flow from death benefits that may be securitized.
Life insurance policies are often purchased by companies for different purposes. For example, a company may purchase life insurance policies for its employees as a benefit of their employment, with death benefits going to the employee's beneficiaries. A bank may purchase life insurance policies on its borrowers with death benefits going to the bank at levels sufficient to cover the outstanding mortgage amounts.
Typically, companies also use the life insurance policies as an investment vehicle. Present corporate owned life insurance policies attempt to maximize positive cash value growth (“CVG”), thus increasing the cash value of the policies (as used herein, CVG is the difference between the cash value of the insurance policy and the basis of the insurance policy). CVG is maximized by simply keeping death benefits at a minimum. In some situations, however, large positive CVG can adversely affect a company's liquidity, and investment and business options due to regulatory limitations on the amount of investment they can have in life insurance. Thus, if an institution has a large number of life insurance policies to cover its borrowers or employees, as the CVG increases, the institution will have a limited number of borrowers or employees to remain in regulatory compliance. Alternatively, if the cash value is controlled, then more people may be insured.
Another disadvantage of large CVG is that if borrowers prepay their mortgages, the bank may want to exchange the insured of the life insurance policies covering the original borrowers to the new borrowers. Large CVG may have a significant adverse financial impact on the bank when it effects these exchanges.
Accordingly, there is a need for a system to manage the CVG of life insurance policies and to ensure that the insurance policies remain in regulatory compliance. Additionally, when the cash value of the policy is controlled and cash flow can be actuarially calculated to a high certainty and, in fact, the cash flow from the payment of death benefits can be controlled. The cash flow has a calculable value. Thus, it is desirable to have a computer system to monitor cash values in a large pool of insurance and to securitize at least a portion of the cash flow.
SUMMARY OF THE INVENTION
The present invention provides a unique system and method that overcomes the disadvantages of the prior art systems by managing the CVG of large pools of insurance policies through monitoring death rates and interest rates, and adjusting premium payments and death benefit levels. Thereby returning excess CVG to the beneficiary as death benefits.
In one preferred embodiment of the invention, the system accesses selected data having terms associated therewith. These terms can be, for example, the death benefit, premium, credited interest, etc. of the insurance policy. The data may consist of data for the terms for a point in time or may consist of historical and/or future data. The system then calculates a first value, such as the cash value of the insurance policy, from the accessed data for a predetermined point in time. Next, the system compares the first value to a predetermined value. For instance, the system may compare the cash value to a precalculated target cash value for the predetermined point in time. The system then applies an adjustment to the results of the comparison in accordance with a predetermined criteria. As an example, the system, based upon the comparison determines the death benefit adjustment. The system then modifies at least one of the terms, such as the death benefit, in accordance with the adjustment so that the cash value growth of the life insurance policy is managed. The system then calculates the present value of the future cash flow and CVG, so that an optimal portion of the cash flow and CVG may be sold.
In another preferred embodiment, the invention accesses selected data having terms associated therewith. These terms can be, for example, the death benefit, premium, credited interest, etc. of the insurance policy. The data may consist of data for the terms for a point in time or may consist of historical and/or future data. The system then calculates a first value, such as the cash value of the insurance policy, from the accessed data for a first predetermined point in time. The system also calculates a second value, such as the cash value of the insurance policy, from the accessed data for a second predetermined point in time. Next, the system compares the first value to a predetermined criteria, for example, the basis, to determine for instance, if the cash value is greater than the basis and by how much, for the first predetermined point in time. The system also compares the second value to a second predetermined criteria, for example, zero, to determine, for instance if the second cash value of the insurance policy is greater than a criteria amount over zero for the second predetermined point in time. The system then applies an adjustment to at least one of the said comparisons in accordance with a third predetermined criteria. For example, the system, based upon the comparisons, determines the death benefit adjustment. The system then modifies at least one of the terms, such as the death benefit, in accordance with the adjustment so that the cash value growth and death benefits of the insurance policy are managed. The system then projects the cash flow of the pool of policies received as death benefits and the CVG of the pool of policies and calculates the present value thereof under a predetermined fixed interest rate, so that at least a portion of the projected cash flow and/or CVG may be sold to a third party.
In yet another preferred embodiment, the system accesses selected data having terms associated therewith. These terms can be, for example, the death benefit, premium, credited interest, etc. of the insurance policy. The data may consist of data for the terms for a point in time or may consist of historical and/or future data. The system then calculates a first value, such as the cash value of the insurance policy, from the accessed data for a first predetermined point in time. The system also calculates a second value, such as the basis, from the accessed data for the first predetermined point in time. The system also calculates a third value, such as the cash value, from the accessed data for a second predetermined point in time. The system compares the first value to the second value of the insurance policy, for example, to obtain the amount of the cash value over the basis, and also compares the third value to a first predetermined criteria, such as zero, to determine if the cash value at the second predetermined point in time is a certain amount greater than zero. Based upon these comparisons, the system applies an adjustment to at least one of the comparisons in accordance with a second predetermined criteria. For example, if the amount of the cash value over the basis is greater than a certain predetermined amount, then the amount that the death benefit level should be raised, if possible, is determined. The system then modifies at least one of the terms in accordance with the adjustment, such as raising the death benefit by the amount determined, so that the cash value growth of the insurance policy is managed. Additionally, the cash flow is managed. Thus, when an actuarially credible population is insured, the system can predict the cash flow. Then the present value of the cash flow is calculated, and sold in a private placement or the like.
Accordingly, it is an object of this invention to p
Chatfield William Donald
Meyer Bennett Stephen
Blank Rome Comisky & McCauley LLP
Hafiz Tariq R.
Meinecke-Diaz Susanna
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