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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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  • Background

  • Task Force Members

  • Mandate

  • 2007 Educational Note & Update

  • OSFI’s Concerns

  • Segregated Fund Policyholder Behaviour

    • Research Objective

    • Current Status

    • Next Steps


  • 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 Methodologies

  • 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 Methodologies

  • 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 Methodologies

  • 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 Methodologies

  • 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 Methodologies

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 Methodologies

Issues addressed (cont’d)

  • Level of Aggregation

  • Discounting and C3 PfAD

  • Policyholder Related Assumptions

  • Margins for Adverse Deviation

  • Sampling/Number of Scenarios

Update Methodologies

  • 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 Methodologies

  • 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 Methodologies

  • 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 Methodologies

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 Methodologies

  • 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 Methodologies

  • 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 Methodologies

  • Data processing, analysis of results and construction of lapse tables based on experience

    • Data collection targeted for 2010

    • Report and distribution to members