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Segregated Fund Liability & Capital Methodologies Task Force. Josephine Robinson. Agenda. Background Task Force Members Mandate 2007 Educational Note & Update OSFI’s Concerns Segregated Fund Policyholder Behaviour Research Objective Current Status Next Steps. Background.

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Presentation Transcript
agenda
Agenda
  • Background
  • Task Force Members
  • Mandate
  • 2007 Educational Note & Update
  • OSFI’s Concerns
  • Segregated Fund Policyholder Behaviour
    • Research Objective
    • Current Status
    • Next Steps
background
Background
  • OSFI and CIA meet bi-annually
  • OSFI investigating segregated fund capital and the approach that should be used to assess the level of capital
  • Indicated that they were reviewing methodology
  • CIA established Task Force
  • OSFI prepared to consider input
task force on segregated fund liability and capital methodologies
Task Force on Segregated Fund Liability and Capital Methodologies
  • Alexis Gerbeau (chairperson)
  • Christian-Marc Panneton
  • Byron Corner
  • Edwin Peh
  • Lynn Guo
  • Mike Schofield
  • Ricardo Mitchell
  • Allan Brender (observer)
  • Qi Sun (minute taker)
mandate of task force
Mandate of Task Force
  • To explore alternative methodologies for determining actuarial liabilities and capital considering the total balance sheet requirements
  • To address the issue of the recognition of hedging in the determination of actuarial liabilities and regulatory capital for segregated fund guarantees
  • To identify at a high level all material risks that should be considered in the determination of the liabilities and capital
  • To identify areas where further guidance is required
mandate of task force1
Mandate of Task Force
  • Intention is to prepare a well-articulated recommended methodology
    • If no consensus or no methodology is clearly superior then documentation of various methodologies with advantages and disadvantages would be prepared
mandate of task force2
Mandate of Task Force
  • Intend to examine particular risks related to a hedging program such as basis risk, the uncertainty in future implied volatility and the liquidity risk in financial markets.
    • Currently insufficient guidance as to how to reflect this in the valuation
time frame
Time Frame
  • Target date of final report is the end of December 2009
  • Areas that require additional review and quantification would be dealt with thereafter
november 2007 educational note
November 2007 Educational Note

Issues addressed

  • Valuation Method – Bifurcated or Whole Contract Approach
  • Term of the Liability
    • Hedging
  • Recoverability Testing for the Allowance for Acquisition Expenses
    • Choice of CTE Level
november 2007 educational note1
November 2007 Educational Note

Issues addressed (cont’d)

  • Level of Aggregation
  • Discounting and C3 PfAD
  • Policyholder Related Assumptions
  • Margins for Adverse Deviation
  • Sampling/Number of Scenarios
update
Update
  • 2002 Segregated Fund paper only dealt with the downside movement
    • Draft by the 2007 Task Force on Segregated Funds in their unpublished paper was focused on expanding on this issue
osfi s concerns
OSFI’s Concerns
  • Whether current approach captures all the risks and produces sufficient required capital
  • Last year’s crisis highlights that there continues to be unresolved issues in establishing required capital
osfi s concerns1
OSFI’s Concerns
  • OSFI is concerned with the significant differences amongst companies; different models are used to model the same risk
  • OSFI is investigating alternative methodologies
  • OSFI will consider the work of the Task Force
segregated fund policyholder behaviour
Segregated Fund Policyholder Behaviour

The Member Services Council established a subcommittee to investigate what analysis should be conducted for segregated funds policyholder behaviour

  • Subcommittee of the Research Committee
  • Will start with an empirical analysis of policyholder lapsation
research objective
Research Objective
  • Gather together data on lapses across relevant policyholder, distribution and product features characteristics
    • Will deliver a report and Excel tables for practitioners to perform additional analysis
current status
Current Status
  • Currently working on the second iteration of the data request template
  • Preparing a notice of intent to obtain data for a segregated fund lapse experience study (incl. data guidelines, instructions and confidentiality agreement)
next steps
Next Steps
  • Data processing, analysis of results and construction of lapse tables based on experience
    • Data collection targeted for 2010
    • Report and distribution to members
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