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Segregated Fund Liability & Capital Methodologies Task Force

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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Segregated Fund Liability & Capital Methodologies Task Force

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  1. Segregated Fund Liability & Capital Methodologies Task Force Josephine Robinson

  2. Agenda • Background • Task Force Members • Mandate • 2007 Educational Note & Update • OSFI’s Concerns • Segregated Fund Policyholder Behaviour • Research Objective • Current Status • Next Steps

  3. 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

  4. 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)

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. 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

  16. 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)

  17. 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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