the c3p2 project lessons learned l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
The C3P2 Project “Lessons Learned” PowerPoint Presentation
Download Presentation
The C3P2 Project “Lessons Learned”

Loading in 2 Seconds...

play fullscreen
1 / 13

The C3P2 Project “Lessons Learned” - PowerPoint PPT Presentation


  • 279 Views
  • Uploaded on

The C3P2 Project “Lessons Learned”. Larry M. Gorski, FSA, MAAA Claire Thinking. US Regulatory RBC Formula Life Insurers. Regulators wanted a formula that : Served as a minimum capital standard As simple as possible Objective Auditable. US Regulatory RBC Formula Life Insurers.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'The C3P2 Project “Lessons Learned”' - kory


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
the c3p2 project lessons learned

The C3P2 Project“Lessons Learned”

Larry M. Gorski, FSA, MAAA

Claire Thinking

us regulatory rbc formula life insurers
US Regulatory RBC Formula Life Insurers
  • Regulators wanted a formula that :
    • Served as a minimum capital standard
    • As simple as possible
    • Objective
    • Auditable
us regulatory rbc formula life insurers3
US Regulatory RBC FormulaLife Insurers
  • Required capital calculation is primarily formulaic
  • Factors based on the practices of a “well-managed” company and industry-wide experience
  • In most cases, factors applied to values reported in the annual statement
c 3 interest rate risk
C-3 (Interest Rate Risk)
  • Generally recognized that a factor based approach doesn’t work
  • RBC based on the results of stochastic modeling introduced into formula in CY 2000
  • Most life insurers exempt from the requirement
    • Regulators unwilling to rely on company actuary
    • Industry argued that modeling “not needed” in all cases
    • Factor based floor and ceiling included in regulatory requirement
variable annuity guarantees
Variable Annuity Guarantees
  • Product variety and complexity of risk rules out use of factors
  • Regulators ask AAA to provide recommendations on a modeling approach
  • AAA accepts charge and begins work
  • Project expanded from RBC to include reserves
practical issues
Practical Issues
  • All practical issues stem from:
    • Unwillingness of regulators to rely professionalism of actuary (“Asymmetric knowledge” issue)
    • Insurer concern over resources and cost
    • Concerns of the actuarial profession
      • (AAA) Finding resources to assist regulators
      • Dealing with constraints of corporate organizational structure (“Reliance” issue)
regulatory concerns solutions
Regulatory Concerns/Solutions
  • Little experience with modeling of complex financial products
    • Single Standard Scenario
    • Training provided by AAA
  • Uncomfortable with “actuarial judgment” in conjunction with certain assumptions
    • Single Standard Scenario
    • Calibration points for distribution of equity fund returns for different time horizons
    • Mortality
      • 65% or 100% of 1994 MGDB Mortality Table
regulatory concerns solutions8
Regulatory Concerns/Solutions
  • Uncomfortable with “actuarial judgment” in conjunction with certain assumptions – Other possible solutions
    • Peer Review
    • Required PUBLIC disclosure of assumptions
      • Proprietary assumptions disclosed via actual to expected studies
      • Direct exposure of Non-proprietary assumptions
        • Distribution of equity fund returns for different time horizons
        • Interest rate paths
insurer concerns solutions
Insurer Concerns/Solutions
  • Volatility of Required Capital
    • Not yet resolved
  • Resources and cost
    • Alternative Methodology Factors
    • Factor picking tool
    • Pre-packaged scenarios
      • Research needed to determine acceptable “n”
    • Scenario picking tool
professional concerns solutions
Professional Concerns/Solutions
  • Guidance needed
    • Number of scenarios
      • Variance of CTE estimator
      • Representative scenarios
    • Modeling dynamic hedging strategies
    • Updating assumptions in light of emerging experience
      • Bayesian methods
lessons learned
Lessons Learned
  • A solution to the “asymmetric knowledge” problem is needed
  • A more responsive, independent actuarial research program is needed
  • The “reliance” problem needs to solved
an example dynamic hedging
An Example – Dynamic Hedging
  • The AAA C3P2 Recommendation allows for required capital to be reduced as a result of hedging.
  • Open Questions
    • What techniques can be used to demonstrate that a dynamic hedging program is effective?
    • What assumptions should be used in this demonstration?
    • Who is responsible for the demonstration?
    • What methods should be used to reduce required capital for dynamic hedging programs that are partially effective?
    • How should required capital requirements deal with deviations from a dynamic hedging program?
an example dynamic hedging13
An Example – Dynamic Hedging
  • Regulatory expectations and insurer hedge modeling abilities may be different.
  • Research that identifies and evaluates different approaches to dynamic hedging is needed.
  • Regulatory standards applicable to dynamic hedging whether person responsible is an actuary or other professional