Computer system and methods for management, and control of annuities and distribution of annuity payments

• US 6,275,807 B1
• Filed: 08/26/1998
• Issued: 08/14/2001
• Est. Priority Date: 08/26/1998
• Status: Expired due to Term

• Current Assignee: Metropolitan Life Insurance Company (MetLife Incorporated)
• Original Assignee: Metropolitan Life Insurance Company (MetLife Incorporated)
• Inventors: Schirripa, Felix
• Primary Examiner(s): Trammell, James P.
• Assistant Examiner(s): ROSEN, NICHOLAS D
• Application Number:
  US09/140,715
• Time in Patent Office: 1,084 Days
• Field of Search: 705/1, 705/4, 705/35, 705/36, 283/54
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A computer system and methods for management and control of annuities and distribution of annuity payments is presented which enables transfer of funds between annuities, whether variable or fixed, without incurring payment discontinuity, while providing for allocation of interest risk, investment risk, and mortality risk between insurer and insured.

Claims

1. A method for determining a progression of payments from a variable annuity comprising the steps of:

computing a first actuarial present value of said annuity assuming a first pricing interest rate, i₁, assumed at a time, t₁;

computing a second actuarial present value of said annuity at a subsequent time t₂ assuming a second pricing interest rate, i₂;

computing an interest adjustment factor, S, by dividing said first actuarial present value by said second actuarial present value;

determining an actual investment rate of return, r, of said annuity during a time interval from time t₁ to time t₂;

computing an investment performance factor, R, based on said actual investment rate of return, r;

determining a subsequent payment, b₂, by forming the product of a prior payment, b₁, with the product of said interest adjustment factor, S, and said investment performance factor, R; and

distributing said subsequent payment to an annuitant.

2. The method of claim 1, wherein an initial payment, b₀, is determined by the steps of:

determining a net consideration, π

_net, to be invested in said annuity;

computing an initial actuarial present value of said annuity based on a pricing interest rate, i₀, assumed at a time of determining said initial payment; and

determining said initial payment, b₀, by dividing said net consideration, π

_net, by said initial actuarial present value.

3. The method of claim 2, wherein said net consideration, π

_net, comprises an amount transferred from a transferor annuity to said variable annuity.

4. A method for transferring an amount T at a time, k, subsequent to a time, n, and preceding a time, n+1, from a fixed annuity fund to a variable annuity fund comprising the steps of:

determining a pre-transfer actuarial present value of said fixed annuity;

computing a ratio, y, of said transfer amount T to said pre-transfer actuarial present value of said fixed annuity;

computing the product, P, of said ratio, y, and a pre-transfer payment from said fixed annuity;

transferring said transfer amount, T, from said fixed annuity to said variable annuity fund;

reducing payments of said fixed annuity by a factor of one minus y;

computing a pre-transfer payment for said variable annuity at time k according to the method of claim 1, wherein;

said prior payment b₁ is the variable fund annuity payment calculated at the payment time t₁=n next preceding time t₂=k;

said investment performance factor is equal to (1+r)/d, where $d=\frac{\left(1+i_1\right)}{{\left(i+i_2\right)}^{n+1-k}};<br><br>$

 

and

said pre-transfer payment is set equal to said subsequent payment b₂ computed thereby;

adding said product P to said pre-transfer payment of said variable annuity to form an interim payment; and

computing a next annuity payment at time n+1 next subsequent to time k according to the method of claim 1, wherein;

said prior payment b₁ is set equal to said interim payment, time t₁ is set equal to time k, time t₂ is set equal to time n+1;

said investment performance factor is equal to (1+r)/d, where d=(1+i₁)<sup>n+1−

k</sup>; and

said next variable annuity payment is set equal to said subsequent payment b₂ computed thereby.

5. The method of claim 4, wherein said assumed second pricing interest rate for computing said pre-transfer payment of said variable annuity is used to determine said actuarial present value of said fixed annuity.

6. The method of claim 4, wherein payments from said variable annuity are based upon mortality assumptions which are the same as mortality assumptions upon which payments from said fixed annuity are based.

7. The method of claim 4 wherein payments for said variable annuity determined at the time of transfer and subsequent thereto are based on mortality assumptions made at a time when said variable annuity was originally purchased.

8. The method of claim 4 wherein payments for said fixed annuity determined at the time of transfer and subsequent thereto are based on mortality assumptions made at a time when said fixed annuity was originally purchased.

9. A system for transferring an amount T at a time, k, subsequent to a time, n, and preceding a time, n+1, from a fixed annuity fund to a variable annuity fund comprising:

a data processor for implementing the method of claim 4.

10. A method for transferring an amount T at a time, k, subsequent to a time n and preceding a time n+1, from a first variable annuity fund to a second variable annuity fund comprising the steps of:

determining a pre-transfer actuarial present value of said first variable annuity;

computing a ratio, y, of said transfer amount T to said pre-transfer actuarial present value of said first variable annuity;

computing a first pre-transfer payment for said first variable annuity at time k according to the method of claim 1, wherein;

said prior payment b₁ is the annuity payment of said first variable annuity calculated at the payment time t₁=n next preceding time t₂=k;

said investment performance factor is equal to (1+r)/d, where $d=\frac{\left(1+i_1\right)}{{\left(i+i_2\right)}^{n+1-k}};<br><br>$

 

and

said first pre-transfer payment is set equal to said subsequent payment b₂ computed thereby;

computing a product, P, of said ratio, y, and said first pre-transfer payment from said first variable annuity;

determining a first interim payment by reducing said first pre-transfer payment of said first variable annuity by a factor of one minus y;

computing a second pre-transfer payment for said second variable annuity at time k according to the method of claim 1, wherein;

said prior payment b₁ is the payment of said second variable annuity calculated at the payment time t₁=n next preceding time t₂=k,

said investment performance factor is equal to (1+r)/d, where $d=\frac{\left(1+i_1\right)}{{\left(i+i_2\right)}^{n+1-k}};<br><br>$

 

and

said second pre-transfer payment is set equal to said subsequent payment b₂ computed thereby;

adding said product, P, to said second pre-transfer payment of said second variable annuity to form a second interim payment;

transferring said transfer amount T from said first variable annuity fund to said second variable annuity fund;

computing a next variable annuity payment for said first variable annuity at time n+1 next subsequent to time k according to the method of claim 1, wherein;

said prior payment b₁ is set equal to said first interim payment, time t₁ is set equal to time k, time t₂ is set equal to time n+1;

said investment performance factor is equal to (1+r)/d, where d=(1+i₁)<sup>n+1−

k</sup>; and

said next variable annuity payment for said first variable annuity is set equal to said subsequent payment b₂ computed thereby; and

computing a next variable annuity payment for said second variable annuity at a payment time n+1 next subsequent to time k according to the method of claim 1, wherein;

said prior payment b₁ is set equal to said second interim payment, time t₁ is set equal to time k, time t₂ is set equal to time n+1;

said investment performance factor is equal to (1+r)/d, where d=(1+i₁)<sup>n+1−

k</sup>; and

said next variable annuity payment for said second variable annuity is set equal to said subsequent payment b₂ computed thereby.

11. The method of claim 10, wherein said assumed pricing interest rate for computing said second pre-transfer payment of said second variable annuity is used to determine said actuarial present value of said first variable annuity.

12. The method of claim 10, wherein payments from said second variable annuity are based upon mortality assumptions which are the same as mortality assumptions upon which payments from said first variable annuity are based.

13. The method of claim 10 wherein payments for said first variable annuity determined at the time of transfer and subsequent thereto are based on mortality assumptions made at a time when said first variable annuity was originally purchased.

14. The method of claim 10 wherein payments for said second variable annuity determined at the time of transfer and subsequent thereto are based on mortality assumptions made at a time when said second variable annuity was originally purchased.

15. A system for transferring an amount T at a time, k, subsequent to a time, n, and preceding a time, n+1, from a first variable annuity fund to a second variable annuity fund, comprising:

a data processor for implementing the method of claim 10.

16. A method for transferring an amount T at a time, k, subsequent to a time, n, and preceding a time, n+1, from a variable annuity fund to a fixed annuity fund comprising the steps of:

determining a pre-transfer actuarial present value of said variable annuity;

computing a ratio, y, of said transfer amount T to said pre-transfer actuarial present value of said variable annuity;

computing a pre-transfer payment for said variable annuity at time k according to the method of claim 1, wherein;

said prior payment b₁ is the annuity payment of said variable annuity calculated at time t₁=n next preceding time t₂=k;

said investment performance factor is equal to (1+r)/d, where $d=\frac{\left(1+i_1\right)}{{\left(i+i_2\right)}^{n+1-k}};<br><br>$

 

and

said pre-transfer payment is set equal to said subsequent payment b₂ computed thereby;

computing the product, P, of said ratio, y, and said first pre-transfer payment from said variable annuity;

determining an interim payment by reducing said pre-transfer payment of said variable annuity by a factor of one minus y;

transferring said transfer amount T from said variable annuity fund to said fixed annuity fund;

adding said product, P, to a pre-transfer payment of said fixed annuity to provide a post-transfer fixed annuity payment; and

computing a next variable annuity payment for said variable annuity at time n+1 next subsequent to time k according to the method of claim 1, wherein;

said prior payment b₁ is set equal to said interim payment, time t₁ is set equal to time k, time t₂ is set equal to time n+1,

said investment performance factor is equal to (1+r)/d, where d=(1+i₁)<sup>n+1−

k</sup>; and

said next variable annuity payment for said variable annuity is set equal to said subsequent payment b₂ computed thereby.

17. The method of claim 16 wherein payments for said variable annuity determined at the time of transfer and subsequent thereto are based on mortality assumptions made at a time when said variable annuity was originally purchased.

18. The method of claim 16 wherein payments for said fixed annuity determined at the time of transfer and subsequent thereto are based on mortality assumptions made at a time when said fixed annuity was originally purchased.

19. A system for transferring an amount T at a time, k, subsequent to a time, n, and preceding a time, n+1, from a variable annuity to a fixed annuity comprising:

a data processor for implementing the method of claim 16.

20. A method for management and control of annuities comprising the steps of:

receiving a request to transfer an amount from a first annuity to a second annuity;

transferring said amount from said first annuity to said second annuity;

adjusting payments from said first and second annuities according to the method of claim 4 only if said first annuity is a fixed annuity and said second annuity is a variable annuity;

adjusting payments from said first and second annuities according to the method of claim 9 only if said first annuity is a variable annuity and said second annuity is a variable annuity; and

adjusting payments from said first annuity and said second annuity according to claim 14 only if said first annuity is a variable annuity and said second annuity is a fixed annuity.

21. The method of claim 20 further comprising the steps of buying and selling assets underlying said funds to achieve said transfer.

22. A system for implementing the method of claim 20 comprising:

a processor for computing said actuarial present values and for computing said payments, and for transferring said amount and distributing said payments; and

data storage for storing results of said computations.

23. A system for managing and controlling annuities and distribution of annuity payments, comprising:

data processing means for computing a first actuarial present value of a variable annuity assuming a first pricing interest rate, i₁, assumed at a time, t₁;

data processing means for computing a second actuarial present value of said annuity at a subsequent time t₂ assuming a second pricing interest rate, i₂;

data processing means for computing an interest adjustment factor, S, by dividing said first actuarial present value by said second actuarial present value;

data processing means for determining an actual investment rate of return, r, of said annuity during a time interval from time t₁ to time t₂;

data processing means for computing an investment performance factor, R, based on actual investment rate, r;

data processing means for determining a subsequent payment, b₂, by forming the product of a prior payment, b₁, with the product of said interest adjustment factor, S, and said investment performance factor, R; and

data processing means for distributing said subsequent payment, b₂, to an annuitant.