Lighthouse Financial Services Company — The pricing basis for Beacon Index Advantage on the corrected capital footing, with every assumption stated alongside how it could be wrong and what would reveal it. Version 2.0, 11 June 2026. Status as at 16 October 2026.
1. Why This Version Is Written Differently
The correction itself was straightforward once found. What was not straightforward was the question the Board asked afterwards: how would we have known? Nothing in the previous version of this document offered an answer, because it stated what the actuarial team believed and stopped there.
2. Pricing Basis
| Element | Value | Basis |
|---|---|---|
| Illustrated cap, capped index strategy | 9.25% | Against a peer illustrated 9.00%. Competitive floor 8.50% fixed at Gate 1 — the cap may not be set below it without returning to the Board. |
| GLWB rider election | 62% | Share of policies electing the optional rider at issue. Drives fee income and guarantee exposure together, in the same direction. |
| Average case size | $118,000 | A distribution and pricing assumption, not a contractual minimum. Never carried on any register — see §6. |
| Required capital as a share of account value | 4.2% | The corrected basis. Tabled at 3.33% on 30 Apr 2026; corrected at the second convening. Held against account value throughout the life of the block, not taken once at issue. |
| Net product margin | 0.9332% | Solved from the approved return rather than asserted. The model refuses to load if it solves outside a defensible 0.6–1.6% band. |
| Fixed annual run cost | 1,237,276 | The only element that does not scale with volume — and therefore the entire reason the downside scenario returns a different number from the base. |
Net margin and fixed run cost are solved from the approved return rather than asserted: the model calibrates them so it reproduces 13.4% base and 10.1% downside exactly, and aborts if either lands outside a defensible range. A pricing document whose figures cannot be reproduced from its own outputs is the failure mode §1 describes.
3. The Capital Charge, Corrected
| Basis | Capital ratio | Return | Headroom vs 11.0% |
|---|---|---|---|
| As tabled, 30 Apr 2026 | 3.33% | 14.6% | 360 bp |
| Corrected, 11 Jun 2026 | 4.2% | 13.4% | 240 bp |
The corrected ratio ties to the fact base by identity: 4.2% of the $185,000,000 Year 1 premium is $7,770,000, the Year 1 capital strain figure the business case carries. That identity is what anchors the model to the program's locked facts rather than to a separate set of actuarial workings.
4. Assumptions, With Failure Modes
| ID | Assumption | How it could be wrong | What would reveal it | Readable |
|---|---|---|---|---|
| A-01 | Licensed and in good standing across all 46 target states through launch | A state license lapses or a market-conduct action suspends new business in a target state. | Quarterly license attestation from Compliance. | Continuously — already readable |
| A-02 | The Compact accepts the product under existing uniform standards; no new standard needed | The Compact requires a new uniform standard for the rider feature rather than accepting it under existing ones. | The first substantive Compact objection letter. | Stage 3 — not before the gate that depends on it |
| A-03 | New York is out of launch scope | Distribution pressure to add New York arrives after advisor training is built. | A channel escalation, most likely from a national partner. | Stage 4 or post-launch |
| A-04 | The existing admin platform is extended, not replaced | Configuration reveals the platform cannot carry a launch-scope feature without custom build. | Cordelane configuration testing under WP-1. | Stage 2 — readable now |
| A-05 | Distribution runs through existing IMO/broker-dealer relationships; no new channel | Existing partners decline to add the product, requiring a new channel the case did not fund. | Written commitments against the Year 1 plan — already partially failed. | Already reading against it |
| A-06 | Hedging is executed by the in-house Investments desk | The in-house desk cannot achieve readiness, forcing an external hedging provider and a cost the pricing does not carry. | ISDA execution progress under GC-05 (DEP-06). | Stage 2–3 |
| A-07 | Rates stay inside the Gate 1 pricing corridor | Rates move outside the Gate 1 corridor, compressing the option budget and the illustrated cap. | The monthly option-budget monitor against the corridor. | Continuously |
| A-08 | No competing internal launch draws the same actuarial and IT people in 2027 | A competing internal launch draws the same actuarial and IT people in 2027. | The 2027 portfolio planning round. | Stage 3 — after the gate that commits to it |
A-05 deserves separate mention: it is the only assumption already reading against itself. Written channel commitments stand at $168,000,000 against a $185,000,000 Year 1 target — a 9% shortfall disclosed at Gate 1 and carried rather than closed.
5. Sensitivity
Volume is the single variable that moves the return, because fixed run cost is the only element that does not scale with it. Margin and required capital both scale, so a proportional shortfall would leave the return untouched — it is operating leverage alone that converts lower volume into a lower return.
| Volume vs plan | Projected IRR | NPV at hurdle | Verdict |
|---|---|---|---|
| +0% | 13.40% | $11,009,118 | clears |
| -5% | 12.94% | $8,618,608 | clears |
| -10% | 12.45% | $6,228,098 | clears |
| -15% | 11.92% | $3,837,588 | clears |
| -20% | 11.36% | $1,447,077 | clears |
| -25% | 10.76% | $-943,433 | FAILS |
| -30% | 10.10% | $-3,333,943 | FAILS |
The case clears down to a 23% shortfall. The Benefits Realization Plan converts this table into pre-committed monitoring thresholds, and the Cost-Benefit Analysis carries the full scenario record.
6. What Is Still Not Covered
| ID | Gap |
|---|---|
| AG-01 | Average case size is not on any register. It is a pricing assumption of $118,000 with no risk, assumption or condition attached to it. Nothing in the program's governance would surface a movement in it before launch, and it decomposes volume alongside policy count — two different problems with two different remedies. |
| AG-02 | Rider election and persistency are modeled independently. Higher election with worse persistency can look neutral in aggregate while changing the shape of the guarantee exposure materially. The annual experience study handles the interaction; nothing before launch does. |
| AG-03 | The model is calibrated, not validated. It reproduces the program's approved returns by construction — that proves internal consistency, not that the underlying pricing is right. GC-03's external review addresses the pricing basis; no review addresses the model. |
| AG-04 | No assumption carries an owner distinct from the team that set it. Actuarial sets the pricing assumptions and Actuarial monitors them. That is normal in a carrier this size and it is precisely the arrangement that let an 87 bp error reach a gate. |
7. External Review and Control
| Control | Status |
|---|---|
| GC-03 — independent external actuarial review of the rider pricing basis, funded by a $180,000 contingency draw | On track — Ardmore engaged; due 26 Feb 2027 |
| Gate 2 must-meet: pricing signed and supported by the external review | On track |
| Model reproduces all three locked returns to within half a basis point, or refuses to load | Enforced in code |
| Independent review of the model itself | None — see AG-03 |
Prepared by S. Ravichandran, Lead Pricing Actuary, under N. Adeyemi, Chief Actuary. Tabled through the gate process by C. Tyrrell, NPD Program Manager. Related: Cost-Benefit Analysis · Gate 1 Recycle Memorandum · Gate 1 Recycle — Executive Session · Gate Conditions Register (GC-03) · RAIDD Log.