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CIA Annual Meeting Assembl

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Title: CIA Pension Seminar Last modified by: Sheila Richard Created Date: 2/6/2006 3:16:07 PM Document presentation format: On-screen Show Company – PowerPoint PPT presentation

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Title: CIA Annual Meeting Assembl


1
CIA Annual MeetingAssemblée annuelle de lICA
  • June 29 30, 2006 Ÿ Les 29 et 30 juin 2006
  • Ottawa, Ontario

Session GEN-6
2
Update from ALM / Market risk working group
Session GEN-6
3
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Agenda
  • Scope and composition of group
  • Timeline, priorities and approach
  • Technical issues

Session GEN-6
4
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Membership of group
  • Mike White
  • Wally Bridel
  • Stephanie Fadous
  • Charles Gilbert
  • Ron Harasym
  • Andrew Norville
  • Christian-Marc Panneton
  • Sylvain St Georges

Session GEN-6
5
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Scope
  • Methodology to replace Changes in interest rate
    environment (C3) MCCSR component
  • includes impact of non-fixed income assets
    supporting liabilities
  • current phase excludes seg fund guarantees
  • allow for correlation and diversification
  • Analysis of sensitivities
  • 1 year vs run-off
  • real world vs risk neutral
  • new approach vs existing MCCSR

Session GEN-6
6
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Scope
  • Implementation issues (working with Modelling
    Standards group)
  • use of approximations
  • comparability of results

Session GEN-6
7
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Timeline
  • More complex issues includes
  • correlations across products
  • policyholder behaviour
  • asset side features (prepayments etc.)

Define methodology Q2-Q3 2006
Simple initial modelling Q3-Q4 2006
Pilot studies 2007
More complex issues 2007
  • non NA products
  • implementation issues and approximations

Session GEN-6
8
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Issues faced so far
  • Terminal value methodology
  • real world vs risk neutral
  • PADs or no PADs
  • Interactions between market movements and
    insurance cashflows
  • Run-times

Session GEN-6
9
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Risk neutral
  • Uses current market prices
  • No arbitrage
  • Actuarial assumptions at best estimate
  • ...adjust for risk to the extent that not
    diversifiable

Session GEN-6
10
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Real world
  • Uses judgement and historical experience
  • Possibility for arbitrage
  • All risks merit a risk premium
  • Margins for risk are calibrated for consistency

Session GEN-6
11
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Comparison
  • Risk neutral
  • objective (....sort of)
  • consistent with banking definitions
  • some international approaches use this method
  • consistent with market cost to close out risk
  • non-market risks?
  • Real world
  • subjective?
  • consistent with existing practices
  • consistent with cost of continuing to run risk
  • need to have a margin for prudence how?
  • works well for non-market risks

Session GEN-6
12
Update from Modelling Standards
Session GEN-6
13
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Membership of group
  • Bill Beatty
  • Ron Harasym
  • Trevor Howes
  • Jean-Guy Lapointe
  • Robin Li
  • Sylvain St.-Georges
  • Stuart Wason

Session GEN-6
14
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Objective
  • Best practices for internal capital models to
    ensure
  • Accuracy Each risk is accurately reflected.
  • Comparability Between companies.
  • Consistency Between valuation dates and risks.
  • Transparency Including capabilities and
    limitations.
  • Reliability Robust process of generating capital
    results.
  • Practicality Recognizing cost and time
    constraints and appropriate trade-offs between
    theoretical accuracy and materiality.

Session GEN-6
15
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Need for Capital Model Guidance
  • Capital models have some unique issues
  • Tail Considerations Models that work well around
    the expected may be inadequate at estimating
    losses under extreme events.
  • How to calibrate the tail to a 1 in 200 year
    event?
  • What management action assumptions are
    appropriate?
  • Do correlations increase in the tail?
  • Practical Implementation Theoretical framework
    is stochastic upon stochastic which generally
    will not be achievable.
  • Risk Aggregation Reflection of diversification
    benefits.
  • Paper will not provide solutions to these issues
    per se, but rather highlight them and discuss
    ways to ensure a chosen approach is appropriate.

Session GEN-6
16
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Scope
  • Best practices paper only, standards and
    regulatory guidance notes may follow.
  • Includes
  • Model Design
  • Model Implementation
  • Governance
  • Reporting
  • Excludes
  • Risk based capital principles
  • Methodologies

Session GEN-6
17
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Timetable
  • First Draft End of summer
  • Final Base Document End of 2006
  • Risk Specific Appendix on ALM/Mismatch Risk Q107

Session GEN-6
18
CIA Annual Meeting Ÿ Assemblée annuelle de lICA
  • Issues Faced So Far
  • To what extent should Advanced Methods be
    standardized?
  • Should capital be based on the companys risk
    profile at the valuation date, or include
    anticipated changes in risk profile?
  • What minimum requirements should be met before a
    company adopts an advanced method?

Session GEN-6
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