A2. VM21 Flashcards
VM21: Components and calcs for SS, CTE amounts
- VM21 min reserves = SS amount + excess CTE
- excess CTE = max(0, CTE - SS amount)
1. determine SS amount: deterministic calc done at contract level with prescribed assumptions
2. CTE amount: CTE (70) using stochastic projections and prudent estimates
SS amounts overview:
1. calc basic adjusted rsv (BAR) for VA w/ gt and basic rsv (BR)for VA w/o gt
2. calc greatest PV of negative accumulated net revenues (NR) at the end of every projection year
- basically looking for deficiencies in future reserves
- NR = gt benefits paid minus prescribed revenue received
- for each year get the PV of the ANR when deficiency occurs. the greatest of these values is added to the BAR
3a. Finace SS amount for VA w/o gts
= BR
3b. VA w/ Gts
= MAX(csv, BAR + pv largest ANR)
CTE 70 is used to calculate the PV og accumulated deficiencies
- project cf under prudent estimate assumptions
- calc accumulated deficiencies for each scenario = working reserve - accumulated assets
- for each scenario, PV the accumulated definciencies at the end of every projection year back to the val date
- calc the greatest PV of accumulated Deficiencies
- sort each scenario and calc the CTE 70
VM 21 overview
principles
- determine stat reserve needed based on risk
- CTE amount is based on stochastic analysis of asset and liability cfs
- model disconnects in reality should be accounted for in the margins of prudent estimate assumptions
- approximations should not be used to exploit methodology
- insurance products are long-term conrtactual commitments
- commitments are based on uncertainty
- accounting methods are based on the long term fiduciary responsibility insurers have to phs
Scope:
VM21 includes all individual, gorup, deferred, and Imm VAs
VM 21 risks reflected
risks reflected: asset risk: - SA fund performance - credit risks - mortgage loan rollover rates - asset duration risks - performance of equities in real estate -call risk -hedging risks -currency risk
Liability risk:
- reins default risk BEFORE valuation date
- mortality, persistence, wd, premium payment risks
- GLB utilization rate
- trends in mortality
- annuitization risks
- additional premium dump ins
combination risks:
- disintermediation
- risks associated with revenue sharing income
risks that should NOT be reflected:
- reins default risk AFTER valuation date
- liquidity “run on the bank” events
- catastrophe events
- major medical breakthroughs impacting mortality
- General business risk
VM21: How to allocate excess CTE to contract level
factor based alternative methodology for CTE amount
- only for VAs with no gts
- floored at aggregate CSV
for a group of contracts where CTE > SS amount. the excess CTE can be allocated to contract i in a group of N contracts as:
excess CTE(i) = (individual SS amount - CSV) / (GROUP SS amount - CSV) * total excess CTE
if CSV amount is not defined, just set to 0 and use the same formula
VM21: projection of accumulated deficiencies
- Ignore FIT
- reflect all product features (gts, MVAs)
- reflect hedging and reins
- reflect revenue sharing
- assets can grouped into proxy funds for modeling
- contracts can be grouped into model cells
- projection period should be long enough so that the reserves would not increase materially if a longer projection was run
- AVR and IMR should be handled consistently with the CFT model
- set starting assets = approx starting rsv
- include all SA assets allocated, then add GA assets until matched
- (GA assets may be negative)
- reinvestment modeled similarly to existing assets
VM21 CTE amount vs RBC requirements
- GPVAD is similar between VM21 and RBC
- VM21 uses CTE 70
- RBC uses CTE 90, but similar CTE calc
- RBC includes FIT, VM21 ignores
- FIT doesnt impact VM21 discount rates, but does impact RBC
VM21: how to reflect reins and hedging
CTE adn SS amounts are both determined before and after reins ceded
- calc both on a direct bases ignoring reins
- calculate both net of reins
similar to Reins, the CTE amount must be calculated with and without hedges
VM21 certification requirements
- actuary certifies that work complies with ASOPs
- develop actuarial memorandum documenting methodology, assumptions, sensitivity tests, other analysis
- note any material changes in the models
- actuary should identify qualification
- identify scope
- certify the reserves are calculated IAW VM21
- certify prudent assumptions were used
- State that the qualified actuary is not opining on the adequacy of the company’s
surplus or its future financial condition - management certifies that valuation appropriately relfects managements intent and ability to carry out specific courses
VM21: contract holder considerations
behavior assumptions
GLBs:
- assume very low surrender rates for GLWB, GMIB owners over 65 taking withdraws
- low surrenders when owner is taking systematic withdraws
- low surrenders for those under 65 that have NOT taken withdraws
- Behavior assumptions can vary by product and fund performance
- embedded options impact ph behavior
- more ITM = more likely to utilize contract options
- behavior can be rational and irrational
VM21: projection of Annuitization Benefits
- projection of annuitization rates must be based on Market interest rates
- if using point estimates, include a margin that adjusts the implied future rates downward
- this increases the chances that the PV of annuitization benefits > contract CSV
projecting election of GMIBs, 2 methods allowed:
- assume contact is fully surrendered at an amount equal to the stat reserve that would be required for the payout annuity benefits
- contract is assumed to stay inforce, projected annuity benefits paid, and working reserve is projected thereafter
VM21: determining discount rates
3 allowed methods for determining scenario-specific discount rates:
- point estimates: forward interest rates implied by the swap curve in effect as of val date
- C-3 Phase I scenario set (200 scenarios) coupled with the chosen equity return scenarios
- An integrated model of stochastic equity return and interest rate scenarios
• The actuary may switch between the above methods in the following directions without approval from the domiciliary commissioner:
– From 1 to 2 or 3
– From 2 to 3
