InterestRateCalculation Business Rule - Compound Interest and Leap Years Calculations (Doc ID 3024666.1)

Last updated on MAY 30, 2024

Applies to:

Symptoms

On : 11.3.1.9 version, Activity

ACTUAL BEHAVIOR
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When calculating Compound Interest, the business is trying to exclude the extra day in a leap year.
To do this, the parameter “Method365IncludeLeapDayInNumerator” is set to "No" in the InterestRateCalculation Business Rule.

In OIPA, when an Activity is process that calculates Interest with an Effective Date of 1/1/2024 -> 2/29/2024, the system incorrectly subtracts a day from the Interest when it should not be.
If the user process the same Activity after 2/29 of that year, it works as expected.

An example of this would be apply Premium on 1/5/2023, so the Anniversary would be on 1/5/2024.
When the Anniversary Activity runs, the business is expecting that the Total Accumulated Interest to be $750 at a 3% Rate with an initial Premium of $25000.
Instead is calculating it to be $747.91 which is incorrect.

If you did the same situation but used 3/1 as the Effective Date, then the system would correctly calculate the Interest to be $750.
This issue is only occurring for Activities that run between 1/1 and 2/29 of a leap year.
The interest at any point should be based on the following formula =(1+rate)^(days since last valuation/365)-1, and when setting the Method365IncludeLeapDayInNumerato.
Expectation that it excludes the Leap Day in the (days since last valuation) part but it seems for 1/1 – 2/29 it is removing the day when it should not be.


EXPECTED BEHAVIOR
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Interest calculation will use the correct number of days.


STEPS
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The issue can be reproduced at will with the following steps:
1. Have Rates setup in OIPA and the Interest Rate Calculation Rule set to apply Compound Interest with the Method365IncludeLeapDayInNumerator set to No.
2. Apply a premium on say 1/5/2023 and have an Anniversary or similar Transaction set to run a year later on 1/4/2024.
3. When you process the Anniversary Activity it will calculate the interest to be 364 days instead of 365.
4. Repeat the same process but use 3/1/2023 and 3/1/2024 as the Effective Dates and notice that OIPA will correctly calculate the interest for 365 days.

Cause

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