AG43 & Credit Risk Webinar
Document ID: 2009-1515
Published on: 13th August 2009
Author: Craig Turnbull & Tony Dardis
This webcast was delivered by Tony Dardis and Craig Turnbull from the Barrie & Hibbert New York office.
AG43, the emerging new piece of US actuarial guidance, will for the first time require firms to undertake a principles-based stochastic reserving calculation in their assessment of statutory reserves for variable annuity business.
A quite similar stochastic assessment requirement has existed for a number of years for statutory capital for VA business(C-3 Phase II). However, the new reserving requirement will significantly raise the profile and implications of this type of work when it takes effect at the end of 2009.
Some insurance groups intend to use the American Academy of Actuaries’ pre-packaged scenario set, possibly in conjunction with the interest rate generator tool, in their implementation of AG43.
Whilst this can provide a sound starting point, there are a number of technical limitations, one of which in particular is the treatment of credit risk and the generation of corporate bond index returns.
It should be borne in mind that when the original work on scenario generation for C3 Phase II was performed by the Academy, the environment for credit risky assets was very different to today – the recent experience in the corporate bond markets has highlighted the importance of this area of financial market risk, and the dangers of taking approximate approaches to modeling this risk.
In this special webcast, Barrie & Hibbert outlines some of the potential pitfalls of using what has been provided by the Academy for credit-risky asset scenario generation for purposes of AG43.
We then present a new product offering that enables a relatively low-cost yet sophisticated approach to credit risk modeling that is aligned with what has been made available by the Academy for other financial market risks.
Thus, practitioners are able to tap into the credit risk modeling capabilities of Barrie & Hibbert, whilst still using the pre-packaged scenario set for interest rate and equity return scenarios.
The download file contains a .wmv video file which will allow you to "replay" the webcast in full and a PDF of the webcast slides.
