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CIA Annual Meeting Assemblée annuelle de l’ICA

CIA Annual Meeting Assemblée annuelle de l’ICA. June 29 & 30, 2006 Ÿ Les 29 et 30 juin 2006 Ottawa, Ontario. CLIFR Calibration of Interest Rate Models Working Group. CIA Annual Meeting Ÿ Assemblée annuelle de l’ICA. Calibration of Interest Rate Models Working Group

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CIA Annual Meeting Assemblée annuelle de l’ICA

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  1. CIA Annual MeetingAssemblée annuelle de l’ICA June 29 & 30, 2006 Ÿ Les 29 et 30 juin 2006 Ottawa, Ontario CLIFR Calibration of Interest Rate Models Working Group

  2. CIA Annual Meeting ŸAssemblée annuelle de l’ICA Calibration of Interest Rate Models Working Group VAL-2: CLIFR Part I - PD June 29 – 30, 2006 CLIFR Calibration of Interest Rate Models Working Group

  3. Agenda Composition of the Working Group Objective & Mandate Scope Timeline Overview of Calibration Framework Questions CIA Annual Meeting ŸAssemblée annuelle de l’ICA CLIFR Calibration of Interest Rate Models Working Group

  4. Composition of the Working Group Ed Astrachan Michael Bean David Campbell Ron Harasym Arshil Jamal Christian-Marc Panneton Jason Wiebe CIA Annual Meeting ŸAssemblée annuelle de l’ICA CLIFR Calibration of Interest Rate Models Working Group

  5. Objective It is desirable to have a set of calibration standards that can be applied consistently to as wide a range of interest-sensitive insurance and investment products as possible, including both long and short term products.  Mandate The working group has been formed to investigate and develop methodologies and standards for the calibration of interest rate models for determining reserves to be held by life insurance companies. CIA Annual Meeting ŸAssemblée annuelle de l’ICA CLIFR Calibration of Interest Rate Models Working Group

  6. Scope In order to arrive at a set of standards that can be applied to at least some products within a reasonable timeframe, it may be necessary for the working group to limit the scope of its work to a few specific products for which complete calibration criteria can be more readily determined and leave the specification of calibration criteria for other interest-sensitive products as a future project, possibly for another working group.  CIA Annual Meeting ŸAssemblée annuelle de l’ICA CLIFR Calibration of Interest Rate Models Working Group

  7. Current Timeline CIA Annual Meeting ŸAssemblée annuelle de l’ICA CLIFR Calibration of Interest Rate Models Working Group

  8. Overview of the Calibration Framework General Principles Qualitative Criteria Quantitative Criteria CIA Annual Meeting ŸAssemblée annuelle de l’ICA CLIFR Calibration of Interest Rate Models Working Group

  9. General Principles Calibration criteria should: Be sufficiently robust to narrow the range of practice, but allow the actuary to apply reasonable judgement to specific circumstances; Be applied to the set of scenarios produced, not to the model parameters or inputs; Be applied to not only the near term, but also the steady state portions of the scenarios produced; CIA Annual Meeting ŸAssemblée annuelle de l’ICA CLIFR Calibration of Interest Rate Models Working Group

  10. General Principles (continued) Be applied to more than one point on the yield curve including a mix of short, medium, and long-term points; Promote the development of scenario sets that measure exposure to yield curve shocks as well as long-term paths of declining as well as rising interest rates, consistent with history; Look at average rate distributions corresponding to extended periods of time as well as rate distributions at selected points in time. CIA Annual Meeting ŸAssemblée annuelle de l’ICA CLIFR Calibration of Interest Rate Models Working Group

  11. Qualitative Criteria Robustness of the Scenario Generator Use of multiple interest rate models Integration with Equity Market Risk Characteristics not specifically mentioned CIA Annual Meeting ŸAssemblée annuelle de l’ICA CLIFR Calibration of Interest Rate Models Working Group

  12. Quantitative Criteria Initial State & Steady State Yield Distributions Left & Right Tail Thickness Shape Distribution & Inversion Frequency Yield Curve Change Characteristics Average Yield Distribution Characteristics Correlation Characteristics Sampling Error Tolerance Characteristics not specifically mentioned CIA Annual Meeting ŸAssemblée annuelle de l’ICA CLIFR Calibration of Interest Rate Models Working Group

  13. Questions? CIA Annual Meeting ŸAssemblée annuelle de l’ICA CLIFR Calibration of Interest Rate Models Working Group

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