Credit Risk and Annuity ICAs: A Comparison of Alternative Approaches
Document ID: 2006-736 (previously 2006/008)
Published on: 1st November 2006
Author: Colin Wilson
Barrie & Hibbert have previously published research comparing 1 year Value at Risk and Run-Off approaches to analysing credit risk for long-term business such as annuities (see for example Actuarial Notebook 2005/10 "Credit Risk and the Run-Off Definition of Risk-Based Capital Requirements" and Actuarial Notebook 2006/06 "Market Risk Capital Definitions and Market Risk: Capital to do what?"). In this report we take a more specific look at what this might mean for different approaches. We emphasise the need for a coherent framework to assess the risks both in order to provide an appropriate justification for the risk capital assessment and so that the analysis is capable of expansion to include new asset classes such as structured credit.
