NAIC C-1 RBC for common stock working notes from teleconference of October 2, 2012
|
|
- Dora Curtis
- 6 years ago
- Views:
Transcription
1 NAIC C-1 RBC for common stock working notes from teleconference of October 2, 2012 The call was organized around the following agenda, work plan elements and data: Bring the P&C participants up to speed if they are on the call Prioritize the work plan items and make work assignments accordingly Discuss ways to address any technical difficulties we currently foresee C-1 common stock work plan elements-preliminary Determine if the application of C-1 charges are effectively measuring the risk associated with common stock and determining appropriate levels of RBC commensurate with the risk Review the use of beta in the RBC requirement Review the tax factor Common Stock Volatility *We confirmed the volatility referenced in the prior study footnote 3--for the first two periods listed. Volatility %* %* % % % % % 1
2 Representatives from Allstate joined Northwestern and the IL DOI for the work on C-1 for common stock. After orienting the Allstate participants to the project, the preliminary work plan elements were discussed and revised to include several additional areas of review as follows: Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Call participants agreed to start work and took assignments as indicated in the revised work elements noted above. The group agreed to start a list of technical issues/concerns that we would attempt to address at appropriate times as the work progressed: Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? WMG October 5,
3 NAIC C-1 RBC for common stock working notes from teleconference of October 9, 2012 The call was chaired by the Illinois Department of Insurance represented by Kevin Fry with the following agenda, work plan elements and data: Review the revised work plan items including assignments Hear updates as appropriate C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Updates Chris Trost from Northwestern is making progress on reproducing the foundational volatility findings (the current version of his spreadsheet analysis was distributed to the group). Randy Moreau of Allstate reported that the foundational volatility work for both life and P&C insurers was the same. He reminded the group that the C-1 RBC charges for life and P&C insurers have different components on which he is doing further research. We will have a comparison of the life and P&C methodologies for a future meeting. Karla Adams of Northwestern reported that she has made substantial progress summarizing the current approach to beta, which should be available by our next meeting. Randy indicated that there is no beta factor for P&C but there are charges for concentration, similar to that of life insurers. 3
4 Wally Givler and Randy Moreau have contacted ACLI and PCI respectively to obtain information on the size of the asset classes other than common stock to which the common stock C-1 charge is applied. This is being done in order to account for all assets that may be affected by a change in the common stock C- 1 factor. This also may indicate that those other assets should receive a separately developed C-1 charge commensurate with their inherent risk. Other technical items for eventual follow-up Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? WMG October 12,
5 NAIC C-1 RBC for common stock working notes from teleconference of October 23, 2012 The call was chaired by the Illinois Department of Insurance represented by Kevin Fry with the following agenda, work plan elements and data: Review the notes from the prior meeting Hear a review of the beta calculation Discuss the concept of regulatory capital approaches tailored to business risks Hear other updates as appropriate Discussion and updates Wally Givler reviewed the notes from the prior call. During this discussion it was noted that Kevin Fry had contacted Dan Daveline of the NAIC about obtaining further information on the P&C RBC model. Dan had indicated that the notes from the NAIC proceedings could not offer further perspective but that information from Robert Bustic, retired actuary from Fireman s Fund, may be able to provide more indepth background. Chris Trost and Randy Moreau agreed to contact Robert Bustic. Kevin Fry opened a discussion about the different pretax RBC charges on common stock for Life (30%) and P&C (15%). He noted that the difference between the effective rates may be much smaller. Karla Adams confirmed this in her materials and review of the Beta calculation for Life insurers. The charge applied to life company common stock investments will center around 19.5% (after applying a tax factor of 35% to the 30% pretax charge) and vary with the Beta adjustment. There is no Beta adjustment for P&C. It was noted that this information should be shared with the wider C-1 group since the Life/P&C difference has attracted their attention. Karla Adams reviewed the application of the Beta adjustment to life company common stock holdings. After selecting an appropriate benchmark, the insurer selects either the individual (individual security basis) or aggregate (portfolio basis) method for computing and applying the charges to the portfolio. The methods are further described in the materials. Randy Moreau reported that he has been researching the history of the P&C model and that in most cases 80-90% of P&C RBC arises from reserves. Chris Trost indicated that most of the Life RBC arises from asset risk. Randy expressed interest in developing a more fulsome explanation of the Life/P&C differences and why they arise. To do that he agreed to obtain an RBC principles document with which he is familiar to help further develop this explanation. C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions 5
6 Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Other technical items for eventual follow-up Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? WMG October 29,
7 NAIC C-1 RBC for common stock working notes from teleconference of October 30, 2012 The call was chaired by the Illinois Department of Insurance represented by Kevin Fry with the following agenda, work plan elements and data: Review the notes from the prior meeting Hear other updates as available Review life industry schedule BA asset amounts relative to directly held common stock Discussion and updates The notes from the prior call were reviewed. Kevin Fry indicated that he had communicated with Nancy Bennett of the American Academy of Actuaries (AAA) about locating P&C background information and that those discussions were ongoing. Chris Trost of Northwestern reported that he was nearly done recreating the life model for common stock C-1 and would be willing to use an article describing the P&C model to attempt a recreation of the P&C model. He indicated that the conceptual approaches for life and P&C are different. Life uses a probability of ruin approach while P&C uses an expected policy owner deficit approach. The life approach is designed to minimize the probability of insolvency while the P&C approach attempts to target a level of acceptable loss should an insolvency occur. It was noted that these approaches were developed as part of separate work streams and on different timelines in the 1990s. It was agreed that there should be further discussion on the merits of these and other conceptual approaches. Wally Givler of Northwestern provided a report on information obtained from Khari Cook of the ACLI regarding the life industry common stock-like assets which attract the current C-1 charge for common stock. A spreadsheet summarizing this information was included with the meeting materials. Essentially the common stock-like assets are significant and consideration of the appropriateness of the common stock C-1 charge applied to them should be considered by the team. Approximately 43% of the combined life industry common stock and common stock like assets are charged with the pre-tax C-1 rate of 30%. The common stock-like assets appear on Schedule BA as other assets. It was also noted that the life sector common stock holdings in general appeared to be proportionate to the overall size of a company s general account assets. There was a question raised about why a life company would prefer to invest in common stock-like assets (e.g. private equity partnership or LLC) rather than directly purchasing common stock. There was a brief discussion about the characteristics of the public versus private market for stocks and the relative volatility. Mario Imbarrato from Allstate agreed to provide an overview of the comparative risks and rewards. It was pointed out by Lynn Cirrinc from Allstate that unlike life companies, P&C companies receive a flat 20% C-1 charge on all common stock-like assets appearing on Schedule BA. That charge is not affected for taxes. 7
8 Wally Givler observed that the life and P&C formulas for common stock and common stock-like assets have several differences and that it would aid our work to prepare a matrix summarizing the differences. C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Other technical items for eventual follow-up Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? WMG November 12,
9 NAIC C-1 RBC for common stock working notes from teleconference of November 13, 2012 The call was chaired by the Illinois Department of Insurance represented by Kevin Fry with the following agenda, work plan elements and data: Review the notes from the prior meeting Hear other updates as available Discussion and updates The notes from the prior call were reviewed. This included reminding the group of the different conceptual approaches for life (probability of ruin) versus P&C (expected policy owner deficit). There had been a review of life Schedule BA assets provided by ACLI and other relevant matters. Randy Moreau of Allstate provided an update on information received from the NAIC concerning common stock and common stock-like investments of the P&C sector. Approximately 38% of the combined P&C industry common stock and common stock like assets are reported as other assets on Schedule BA and charged with the C-1 rate of 20%. The group noted that, as with the life sector, common stock-like assets make up a significant investment for the P&C sector and should be considered in our work. Mario Imbarrato of Allstate discussed why an insurer would prefer using one form of common stock investment over another. He started by observing that the life/p&c differences in the approach to charging C-1 presented challenges for an insurer like Allstate that provides both lines of insurance. It requires knowledge of both life and P&C RBC calculations in order to understand the impact of purchasing common stock for the entities in the group. A major influence when determining to purchase common stock directly in the public market, through a private offering or through a partnership or LLC is the ongoing valuation volatility. The daily mark-to-market valuation volatility of public common stock tends to be higher than other forms of ownership. Private equities tend to be valued using equity method accounting with supporting valuation techniques which emphasize the longer term intrinsic value of the ownership interest. The access to issuer information tends to be very good and sometimes more informative than for publicly traded common stocks. Allstate has done retrospective comparisons which confirm that the valuation volatility of private common stock investments is substantially less. These investments have provided portfolio managers the opportunity to outperform market indices through selective underwriting (aka alpha). This approach to common stock investing is well suited to insurers with long term liabilities. Chris Trost of Northwestern Mutual reported that his work recreating the existing life and P&C C-1 charges is nearing completion and he is confident that he has identified the primary inputs. He will be routing some spreadsheets to illustrate the reconstruction of the current charges. Wally Givler updated the group indicating that the preparation of a matrix summarizing the differences between the life and P&C charges is underway. 9
10 C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI, NAIC and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Other technical items for eventual follow-up Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? WMG November 26,
11 NAIC C-1 RBC for common stock working notes from teleconference of November 27, 2012 The call was chaired by the Illinois Department of Insurance represented by Kevin Fry with the following agenda, work plan elements and data: Review the notes from the prior meeting Hear other updates as available Discussion and updates The notes from the prior call were reviewed. This included correcting the P&C factor for BA assets to 20%. Chris Trost of Northwestern updated the group on the recreation of the life and P&C factors, which is substantially complete. He shared a spreadsheet which demonstrated the expected policy holder deficit which approximated the P&C factors. A conceptual preference for the probability of ruin approach was expressed by Chris and Kevin Fry because of its focus on the frequency of insolvency. It was agreed that we would: More fully document the merits of the probability of ruin approach Start updating the life model with new volatility data Re-examine the 2 year volatility assumption in light of common stock holding periods Use beta as a means to adjust for volatility among directly held common stock reported on Schedule D and indirectly held common stock - like assets reported on Schedule BA Mario Imbarrato of Allstate agreed to discuss this direction with the other Allstate members not present on this call and report back. In preparation for the in-person NAIC meeting of the wider C-1 project group the following points were identified for communication: We have reconstructed the current life and PC factors which have revealed the conceptual differences in their development. There are also computational differences (e.g. tax effect, factors). The life factor is based on a probability of ruin approach. The PC factor is based on an expected policy owner deficit approach. The life approach is designed to minimize the probability of insolvency while the PC approach targets a level of acceptable loss should an insolvency occur. We have also determined that the other assets (BA) with characteristics of common stock are significant for both life (43% of CS and CS like assets) and PC (38% of CS and CS like assets) and should be considered in our review. Volatility of the equity markets has not changed significantly when viewed from 1926 to Although volatility was higher in the 2007 to 2012 time frame. 11
12 We are now developing a new factor and beta approach for life common stock and common stock like (BA) assets. Kevin Fry will be updating the wider C-1 group. C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI, NAIC and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Other technical items for eventual follow-up Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? WMG December 10,
13 NAIC C-1 RBC for common stock working notes from teleconference of December 11, 2012 The call was chaired by the Illinois Department of Insurance represented by Kevin Fry with the following agenda, work plan elements and data: Review the notes from the prior meeting Hear other updates as available Discussion and updates The notes from the prior call were reviewed. Kevin Fry provided an update from the recently concluded NAIC meeting where he provided an update consistent with the points highlighted in our November 27 th teleconference meeting notes. The update was received by the C-1 subgroup of the NAIC. We then discussed the possibility that the common stock C-1 recommendation could be the first work concluded and provided to the NAIC C-1 group. The following tentative conclusions were reached concerning the recommendation: It should include both Life and P&C approaches. It should reflect a consistent approach for both Life and P&C based on the probability of ruin concept currently employed for Life companies. The C-1 factors would likely not vary materially from the current after tax effective rates. The advance materials for this meeting included some research provided by Northwestern concerning public versus private common stock price volatility. Due to scheduling issues, the preparers were unavailable for the call. The group briefly reviewed the material provided and raised the following questions to be discussed at the next meeting (note that initial responses are provided in blue): Is it correct to infer that the difference of 752bps between the annualized standard deviation (ASD) of the S&P 500 and the Custom Private Equity Index reflects the volatility of economic returns vs. reported returns? Yes it is correct. There is no economic reason for private equity returns to be less volatile than public equity returns. The difference in the annualized standard deviation comes from reporting practices (smoothing of returns). Is it correct to say that the ASD of the Custom Private Equity Index is more reflective of short term returns while the ASD of the S&P 500 is more reflective of long term returns? No, the difference comes from reporting practices (smoothing of returns). Are some of the funds included in the Custom Private Equity Index available to the public (with a value subject to more volatile retail sentiments)? Limited Partnership Funds are not available to the public. Only institutions and high-net-worth individuals are allowed to invest into Limited Partnership Funds. 13
14 This discussion suggested to the group that a beta adjustment be considered for Schedule BA assets with the characteristics of common stock. The final discussion topic of the meeting was lead by Kevin Fry questioning whether the 2 year worst loss volatility embedded in the current factor is appropriate suggesting that something more consistent with a longer holding period for common stock should be considered. Chris Trost of Northwestern agreed to review this more closely and report back. C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI, NAIC and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Other technical items for eventual follow-up Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? WMG January 6,
15 NAIC C-1 RBC for common stock working notes from teleconference of January 8, 2013 The call was chaired by the Illinois Department of Insurance represented by Kevin Fry with the following agenda, work plan elements and data: Review the notes from the prior meeting Hear other updates as available Discussion and updates The notes from the prior call were reviewed. Oleg Gurin of Northwestern reviewed the comparison of public common stock total return volatility with that of private common stock noting that after adjusting for serial correlation there is very little difference. This suggests that the economic volatility of common stock reported on Schedule D is no more or less than that reflected in Schedule BA assets with the characteristics of common stock. It was noted that the pretax C-1 charge on Schedule D public common stock is adjusted by the insurer s beta and not so for Schedule D private common stock or Schedule BA assets with the characteristics of common stock. It is possible that the C-1 charge applied to public common stock reported on Schedule D could be higher or lower than that applied to assets on Schedule BA, depending on the insurer s circumstances. This incongruity was the topic of much discussion. Oleg indicated that developing a beta factor for private equity was not feasible because there isn t a reliable broad based index for those assets like there is for the public common stock (e.g. S&P500). It was noted that regulators generally considered assets reported on Schedule BA to be more risky or otherwise worthy of concern compared to other asset classes. There was debate about the factual basis for such concern and whether the recommendation should reflect this perception. The Northwestern representatives agreed to have further discussions and attempt to develop a way of addressing this incongruity. Chris Trost of Northwestern reviewed an analysis which highlighted results when the 2 year holding period reflected in the current common stock factor, and the worst loss assumption, is varied. It was noted that the worst loss approach otherwise referred to as the peak to trough seemed severe and that alternatives should be examined. The group discussed the need to check the history of the 2 year holding period and explore ways of updating that assumption. Chris and the other team members agreed to explore this further. C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI, NAIC and PCI will be contacted) 15
16 Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Other technical items for eventual follow-up Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? WMG January 11,
17 NAIC C-1 RBC for common stock working notes from teleconference of January 23, 2013 The call was chaired by the Illinois Department of Insurance represented by Kevin Fry with the following agenda, work plan elements and data: Review the notes from the prior meeting Hear other updates as available Discussion and updates The notes from the prior call were reviewed and several topics were raised. Kevin asked the group to research the last time the common stock factors were updated since there was some recall that an update was undertaken about 10 years after the current framework was implemented. This was possibly the time when co-variance was added to the RBC computation. Chris Trost agreed to check AAA material on that question. The review of the notes also generated questions about the tax factors. There were two tax factors mentioned from Northwestern s RBC computation (35% and 26.5%). Wally Givler agreed to research the history and use of the factors. It was noted that when the codified statutory accounting rules went into effect on January 1, 2001, the statutory balance sheet was adjusted for deferred tax liabilities and assets. Consistent with that new treatment, RBC was tax affected as well. No changes to the notes were recommended. Wally Givler provided an update on the discussions Northwestern held concerning the RBC charges on public common stock, private common stock, Schedule BA common stock assets and the application of beta adjustments. Essentially, the beta adjustment is a refinement to C-1 for public common stocks and captures the volatility of the insurer s portfolio relative to the market. The S&P 500 is used as the benchmark for the public common stock beta computation. Since there is no such benchmark for private common stock or Schedule BA common stock no beta is applied. Given the limitations, the Northwestern discussions centered on a rationale in support of the status quo as regards the application of beta. Kevin challenged the group by questioning whether the use of beta ever results in a C-1 charge greater than 30% (the maximum is 45%). This will require some research. There is also concern that insurers are incented to take more risk in the private common stock sector since there is no beta adjustment for private common stock or Schedule BA common stock assets. The group will consider these questions. Chris Trost provided an update on research concerning the use of all intermediate points to identify the worst intermediate loss period for determining the necessary C-1 factor for common stock. He reported that considering all points, the factor increases through three years and then stays fairly level. This makes sense because lengthening the period doesn t remove the worst intermediate points. In contrast, considering only endpoints, the factor increases over the first two years and then decreases. This also makes sense since when considering only the endpoints, a longer period allows time for the 17
18 market to recover. A discussion occurred about the merits of using intermediate point versus endpoints. It was tentatively concluded that using all intermediate points is a more thorough means of identifying loss situations for purposes of factoring them into the development of the RBC factor. This was supported by comments that volatility and losses can occur at anytime for a variety of reasons, not just around reporting period end points. In light of this tentative conclusion it was suggested that we turn our attention to the appropriate holding period. It was agreed that further research is needed concerning the holding period. Wally Givler will contact the NAIC Capital Markets personnel to see what information might be available on insurer common stock portfolio turnover. It was also agreed that a list of pros and cons should be prepared to aid the discussion around whether the current 2 year period remains appropriate or another, possibly shorter, period would be indicated. C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI, NAIC and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Other technical items for eventual follow-up Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? WMG January 28,
19 NAIC C-1 RBC for Common Stock working notes from teleconference on January 29, Agenda for the meeting: 1. Review notes from the prior meeting. 2. Present an understanding of the Common Stock update in Hear other updates as available. Item 1: Review notes from prior meeting. Kevin Fry chaired the meeting and opened with a brief summary of the last call. The team reviewed the notes from the January 23 rd meeting and no changes were recommended. Item 2: Discuss work done in update for Common stock RBC. Chris Trost presented a brief summary of the update. This summary is based on the report Recommendation of the American Academy of Actuaries Life-Risk Based Capital Committee on Changes to the Covariance Treatment of Common Stock 1. There were three major updates a change to the covariance formula, the introduction of a beta adjustment to the factor, and the introduction of a concentration adjustment. The working group discussed the nature of risks captured by the beta adjustment and the concentration adjustment; the two adjustments have separate purposes beta adjustment targets risk that cannot be removed by diversification while concentration adjustment targets specific risk. Matti Peltonen asked how the RBC factors compare with the AVR factors. Chris Trost noted that the factors were typically based on an 85 th percentile loss- generally the standard for a reserve. The common stock AVR objective is based on 20%. The NAIC RBC factors have generally been based on a 92-94% percentile loss. Changes to RBC will require a subsequent review of the AVR factors. Wally Givler distributed, prior to the meeting, an Academy document from 2001 containing the tax factor recommendations - Tax Calculations by the American Academy of Actuaries Life-Risk Based Capital Committee s Codification Subgroup from March Kevin noted that the tax offsets varied by asset classes. It was agreed that this document would be discussed in more detail on the next call. Item 2: Hear other updates as available Update on using an extended period of data and on using quarterly snapshots of losses. Chris Trost presented the impact of (a) extending the time period of historical data used, and (b) looking at losses quarterly instead of monthly. When one considers the time period , the 94 th percentile loss was 36.4% (higher than the 29.2% factor based on 1960 to 1991). Using data, the 94 th percentile loss was 32.7%. With this data, when one considers the worst quarterly intermediate results rather than worst monthly results, the 94 th percentile loss was 29.3%. 1 Reference: 19
20 The team summarized the different elements of the calculation that impact the factor: i. Range of the source data ( , ). ii. Intermediate time points (monthly, quarterly). iii. Horizon or Holding Period (1 year, 2 years). iv. Confidence level (94 th percentile, 92 nd percentile). The discussion of what the appropriate elements are will continue on the next call. C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI, NAIC and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Open questions/items: 1. How to disincent companies from taking on more risk by investing in private common stock instead of public common-stock because there is no beta adjustment for private common stock or Schedule BA common stock assets. 2. Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? 20
21 NAIC C-1 RBC for Common Stock working notes from teleconference on February 5, Agenda for the meeting: 1. Review notes from the prior meeting. 2. Continue discussion on covariance changes from Discuss tax adjustment changes from Discuss key assumptions and understand their impact. Item 1: Review notes from prior meeting. Kevin Fry chaired the meeting and opened with a brief summary of the last call. There were no changes to the notes from prior week. Item 2: Covariance changes from Kevin recapped the RBC changes from The changes were to modify the covariance formula, add a beta adjustment for public corporate, and add a concentration factor. The team discussed the impact of the changes - the covariance change in general reduced RBC. Chris Trost described that C-1 assets were split into two categories - one for common stock and one for all others. The common stock category was for unaffiliated common stock, including those in schedule BA partnerships, along with any common and preferred stocks of non-insurance affiliates. For correlations, the C-1 risk of common stock was assumed uncorrelated to C-3 (interest rate) risk and the non-common stock C-1 risk fully correlated with C-3 (interest rate) risk. Item 2: Tax adjustment changes from The team discussed the equity tax adjustment in the document, Tax Calculations by AAA LRBC Committee s Codification Subgroup from March 2001, distributed by Wally Givler before the prior meeting. The focus of this group will be the pre-tax factor. Another group will review the tax adjustments. Item 3: Discuss key model assumptions. The team discussed the impact of key elements horizon, holding period, loss measurement frequency, range of source data and percentile level, and decided to review the results under the following assumptions. i. Range of the source data: , , ii. Intermediate time points: monthly, quarterly. iii. Horizon: 1 year, 2 years. iv. Confidence level: 94 th percentile, 92 nd percentile. Range of source data: Considering 1926 to 1946 would add more data but also would add the great depression and war years. Legislative safeguards put in place after this period may make the data less 21
22 representative of future market behavior. The additional alternative of using the prior 30 years of data was presented. Intermediate time points (loss measurement frequency): A monthly measurement captures losses in all months. A reason to consider three month intervals is that it is more consistent with the frequency of statutory reporting. Horizon: A two year horizon may have been selected as just a chosen safety level. The actual holding period of stocks may not influence the loss since they are market to market. In the AVR Blue Book 2002 report, it was noted that both one-year and two-year horizons were considered and a two year period was selected because of the level of conservatism. (Appendix E in the report: Justification of the 29% common stock factor ). Confidence level at the 94 th percentile maintains consistency with the prior common stock study while 92 nd percentile maintains consistency with prior studies for some classes of bonds. C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI, NAIC and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Open questions/items: 1. How to disincent companies from taking on more risk by investing in private common stock instead of public common-stock because there is no beta adjustment for private common stock or Schedule BA common stock assets. 2. Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? 22
23 NAIC C-1 RBC for Common Stock working notes from teleconference on February 12, Agenda for the meeting: 1. Review notes from the prior meeting. 2. Review results under assumptions identified in the prior meeting 3. Discuss key assumption choices. Invitees: K Adams, L Cirrinc, D Dupont, K Fry, W Givler, O Gurin, M Imbarrato, R Moreau, C Trost, K Venkateswar. Item 1: Review notes from prior meeting. Kevin Fry chaired the meeting and opened with a brief summary of the last call. There were no changes to the notes from prior week. Item 2: Review results under assumptions identified in the prior meeting. The team reviewed the following results based on four different historical ranges, using one year and two year time horizons, and confidence levels of 92% and 94%. In addition the greatest losses were calculated based on one month and 3 month intervals. The data is given below: The team discussed why different time periods (e.g , ) may or may not represent future market behavior. One can arguably exclude the time period from 1926 to 1945 due to the significance of regulatory changes and war on the markets. There are no such strong reasons to exclude the time period from 1946 to With no objections to the time period 1946 to 2012, the team agreed to use it as a working assumption. 23
24 The team discussed different confidence levels. In addition to the 92 nd and 94 th percentile levels, the team decided to review the results at the 95 th percentile level. In several statistical analyses, the 95 th percentile is used as a proxy for variations two standard deviations from the mean. The team decided to continue the discussion on assumptions in the next call. C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI, NAIC and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Open questions/items: 1. How to disincent companies from taking on more risk by investing in private common stock instead of public common-stock because there is no beta adjustment for private common stock or Schedule BA common stock assets. 2. Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? 24
25 NAIC C-1 RBC for Common Stock working notes from teleconference on February 19, Agenda for the meeting: 1. Review notes from the prior meeting. 2. Review results under assumptions identified in the prior meeting 3. Discuss key assumption choices. Invitees: K Adams, L Cirrinc, D Dupont, K Fry, W Givler, O Gurin, M Imbarrato, R Moreau, M Peltonen, C Trost, K Venkateswar. Item 1: Review notes from prior meeting. Kevin Fry chaired the meeting and opened with a brief summary of the last call. There were no changes to the notes from prior week. Item 2: Review results under assumptions identified in the prior meeting. The team reviewed the following 95 th percentile results, shown here with the 92 nd and 94 th percentile data. Data Time Monthly Time Points Quarterly Time Points Range Horizon 92nd p-tile 94th 95th 92nd p-tile 94th 95th year 19.38% 20.87% 22.86% 16.04% 17.81% 19.47% 2 years 26.02% 29.20% 30.83% 22.26% 25.16% 26.31% year 19.38% 21.84% 23.24% 17.07% 19.47% 20.49% 2 years 28.16% 32.74% 36.13% 25.68% 29.26% 30.83% year 21.52% 23.38% 25.66% 18.66% 20.91% 22.68% 2 years 32.29% 36.39% 38.87% 29.20% 32.16% 34.57% year 21.98% 24.39% 26.96% 19.54% 21.98% 23.63% 2 years 34.24% 40.05% 41.48% 32.16% 36.35% 38.09% The team decided to move forward on drafting a document with all the variables considered and a tentative recommendation of the factor. The team decided to discuss beta adjustment and BA assets in the next call, planned for March 5 th. C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI, NAIC and PCI will be contacted) 25
26 Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk Review the use of beta in the RBC requirement (Northwestern life, Allstate-P&C) Review the tax factor (s) Determine if the current application of C-1 charges are effectively measuring the risk associated with common stock and determine appropriate levels of RBC commensurate with the risk Open questions/items: 1. How to disincent companies from taking on more risk by investing in private common stock instead of public common-stock because there is no beta adjustment for private common stock or Schedule BA common stock assets. 2. Volatility There is economic volatility, accounting volatility (e.g. equity method accounting for partnerships), liquidity and other factors impacting common stocks or structures which exhibit the risk characteristics of common stock. Should this be factored into the C-1 charge? If so, how? 26
27 NAIC C-1 RBC for Common Stock working notes from teleconference on March 5, Agenda for the meeting: 1. Review notes from the prior meeting. 2. Discuss beta adjustment and BA assets. Invitees: K Adams, L Cirrinc, D Dupont, K Fry, W Givler, O Gurin, M Imbarrato, R Moreau, C Trost, K Venkateswar. Item 1: Review notes from prior meeting. Kevin Fry chaired the meeting and opened with a brief summary of the last call. There were no changes to the notes from prior week. Item 2: Discuss beta adjustment and BA assets. The team discussed the distribution of common stock portfolio values versus pre-tax factors and beta. Kalluru Venkateswar and Oleg Gurin presented initial observations on 2011 data. Observations Regarding the benefit from beta - the team concluded that using beta is providing a benefit, though limited, in capturing risk in common stock. The team decided to look at multiple years of data (to see if the distribution of beta looks similar in other years), and to see if there is a strong indication of migration from schedule D to BA. The team also decided to understand the implications of using beta on the P&C industry side A draft document with a recommendation for Life industry is planned to be ready for next week s call (March 12 th ). C-1 common stock work plan elements Reproduce the Life and P&C methodologies supporting the current factors (Northwestern life, Allstate P&C) to include holding period and other relevant assumptions Summarize the other asset classifications which use the common stock C-1 factor for assessing RBC (e.g. Schedule BA assets with the characteristics of common stock) (ACLI, NAIC and PCI will be contacted) Consider the subcategories of common stock (e.g. large cap, medium cap, small cap, public, private, etc.) and the varying levels of risk 27
May 19, Re: Investment Risk-Based Capital: A Way Forward. Dear Commissioner Fry:
May 19, 2016 Kevin Fry Chair, Investment Risk-Based Capital (E) Working Group National Association of Insurance Commissioners Via e-mail to: JGarber@naic.org Re: Investment Risk-Based Capital: A Way Forward
More informationINVESTMENT RISK-BASED CAPITAL (E) WORKING GROUP Thursday, February 16, 2017 Noon Eastern/11:00 a.m. Central/10:00 a.m. Mountain/9:00 a.m.
Date: 2/6/17 Conference Call INVESTMENT RISK-BASED CAPITAL (E) WORKING GROUP Thursday, February 16, 2017 Noon Eastern/11:00 a.m. Central/10:00 a.m. Mountain/9:00 a.m. Pacific ROLL CALL Kevin Fry, Chair
More informationReport of the Asset Codification Work Group to the NAIC HORBC Working Group Nashville March 2001
Report of the Asset Codification Work Group to the NAIC HORBC Working Group Nashville March 2001 The American Academy of Actuaries is the public policy organization for actuaries practicing in all specialties
More informationDRAFT, For Discussion Purposes. Joint P&C/Health Bond Factors Analysis Work Group Report to NAIC Joint Health RBC and P/C RBC Drafting Group
DRAFT, For Discussion Purposes Joint P&C/Health Bond Factors Analysis Work Group Report to NAIC Joint Health RBC and P/C RBC Risk Charges for Speculative Grade (SG) Bonds May 29, 2018 The American Academy
More informationRE: July 24th, 2017 comment letter from the American Academy of Actuaries regarding April 9, 2017 Real Estate Equity RBC Proposal
Steven Clayburn Senior Actuary, Health Insurance & Reinsurance steveclayburn@acli.com August 23, 2017 Mr. Kevin Fry Chair, Investment Risk-Based Capital Working Group National Association of Insurance
More informationFebruary 14, Re: Regulator Questions on Proposed Factors for Bonds. Dear Mr. Fry,
February 14, 2018 Mr. Kevin Fry Chair, Investment Risk-Based Capital (E) Working Group (IRBC) National Association of Insurance Commissioners Via Email: Julie Garber (JGarber@naic.org) Re: Regulator Questions
More informationRE: Response to Comments on Proposed RBC Factors for Fixed Income Securities for NAIC s Life Risk-based Capital Formula
October 17, 2016 Kevin Fry Chair, NAIC Investment Risk Based Capital Work Group National Association of Insurance Commissioners Via email: Julie Garber, NAIC staff support RE: Response to Comments on Proposed
More informationOriginal SSAP: SSAP No. 100; Current Authoritative Guidance: SSAP No. 100R
Statutory Issue Paper No. 157 Use of Net Asset Value STATUS Finalized November 6, 2017 Original SSAP: SSAP No. 100; Current Authoritative Guidance: SSAP No. 100R Type of Issue: Common Area SUMMARY OF ISSUE
More informationProposal of the American Academy of Actuaries Life-Risk Based Capital Committee s Codification Subgroup on Changes to the C-1 Treatment of Real Estate
Proposal of the American Academy of Actuaries Life-Risk Based Capital Committee s Codification Subgroup on Changes to the C-1 Treatment of Real Estate Presented to the National Association of Insurance
More informationSEPARATE ACCOUNTS LR006
SEPARATE ACCOUNTS LR006 Basis of Factors Separate Accounts With Guarantees Guaranteed separate accounts are divided into two categories: indexed and non-indexed. Guaranteed indexed separate accounts may
More informationPost-NAIC Update/PBA Webinar
All Rights Reserved. Post-NAIC Update/PBA Webinar Dave Neve, FSA, MAAA, CERA Chairperson, American Academy of Actuaries Life Financial Soundness / Risk Management Committee March 29, 2012 Agenda for Webinar
More informationINVESTMENT RISK-BASED CAPITAL (E) WORKING GROUP Sunday, December 11, :00 9:00 a.m. Fontainebleau Miami Glimmer 3-4 Level 4 ROLL CALL
Date: 11/21/16 2016 Fall National Meeting Miami, Florida INVESTMENT RISK-BASED CAPITAL (E) WORKING GROUP Sunday, December 11, 2016 8:00 9:00 a.m. Fontainebleau Miami Glimmer 3-4 Level 4 ROLL CALL Kevin
More informationJuly 17, Kevin Fry Chair, Investment Risk-Based Capital (E) Working Group National Association of Insurance Commissioners.
July 17, 2018 Kevin Fry Chair, Investment Risk-Based Capital (E) Working Group National Association of Insurance Commissioners Dear Kevin, The C1 Work Group (CIWG) of the American Academy of Actuaries
More informationC1 Work Group Updated Recommendation of Corporate Bond Risk-Based Capital Factors
July 24, 2017 Via email to: jgarber@naic.org Kevin Fry Chair, Investment Risk-Based Capital (E) Working Group National Association of Insurance Commissioners c/o Julie Garber, Senior Manager Solvency Regulation
More informationJune 2001 New Orleans, Louisiana
Common Stock Covariance Instruction Clarifications Presented by the American Academy of Actuaries Life-Risk Based Capital Committee to National Association of Insurance Commissioners Life Risk-Based Capital
More information12/11/2008. Gary Falde, FSA, MAAA Vice-Chair, Life Reserve Work Group Chair, LRWG Asset Subgroup
Purposes of Presentation A Proposed Methodology for Setting Prescribed Net Spreads on New Investments in VM- Gary Falde, FSA, MAAA Vice-Chair, Life Reserve Work Group Chair, LRWG Asset Subgroup Alan Routhenstein,
More informationJuly 2015 Private Client Advisor Alert
Whole Life Dividend Interest Rates for 2015 Near the end of each calendar year, mutual insurance companies declare their dividend interest rates on participating whole life (WL) insurance policies for
More informationActive vs. Passive Money Management
Active vs. Passive Money Management Exploring the costs and benefits of two alternative investment approaches By Baird s Advisory Services Research Synopsis Proponents of active and passive investment
More informationAugust Asset/Liability Study Texas Municipal Retirement System
August 2016 Asset/Liability Study Texas Municipal Retirement System Table of Contents ACKNOWLEDGEMENTS... PAGE 2 INTRODUCTION... PAGE 3 CURRENT STATUS... PAGE 7 DETERMINISTIC ANALYSIS... PAGE 8 DETERMINISTIC
More informationActive vs. Passive Money Management
Synopsis Active vs. Passive Money Management April 8, 2016 by Baird s Asset Manager Research of Robert W. Baird Proponents of active and passive investment management styles have made exhaustive and valid
More informationDividend Growth as a Defensive Equity Strategy August 24, 2012
Dividend Growth as a Defensive Equity Strategy August 24, 2012 Introduction: The Case for Defensive Equity Strategies Most institutional investment committees meet three to four times per year to review
More informationThe Financial Reporter
Article from: The Financial Reporter March 2006 Issue No. 64 RBC C3 Phase II: Easier Said Than Done by Patricia Matson and Don Wilson The stochastic projection is performed using real world, as opposed
More informationCOPYRIGHTED MATERIAL. Investment management is the process of managing money. Other terms. Overview of Investment Management CHAPTER 1
CHAPTER 1 Overview of Investment Management Investment management is the process of managing money. Other terms commonly used to describe this process are portfolio management, asset management, and money
More informationActive vs. Passive Money Management
Active vs. Passive Money Management Exploring the costs and benefits of two alternative investment approaches By Baird s Advisory Services Research Synopsis Proponents of active and passive investment
More informationGetting Smart About Beta
Getting Smart About Beta December 1, 2015 by Sponsored Content from Invesco Due to its simplicity, market-cap weighting has long been a popular means of calculating the value of market indexes. But as
More informationMEMORANDUM. Academy of Actuaries Health Organization Risk Based Capital Task. RBC for Insurance Subsidiaries held at Market Value
MEMORANDUM TO: FROM: Force NAIC HORBC Working Group Academy of Actuaries Health Organization Risk Based Capital Task Chair, Burt Jay DATE: May 17, 1999 RE: RBC for Insurance Subsidiaries held at Market
More informationFinancial Reporting Council Cycle Report Vice President, Financial Reporting: Patricia A. Teufel Staff Liaison: Ethan A. Sonnichsen September 2003
Financial Reporting Council Cycle Report Vice President, Financial Reporting: Patricia A. Teufel Staff Liaison: Ethan A. Sonnichsen September 2003 I. ISSUES Sarbanes-Oxley Act As part of the Financial
More informationAnalysis of Asset Spread Benchmarks. Report by the Deloitte UConn Actuarial Center. April 2008
Analysis of Asset Spread Benchmarks Report by the Deloitte UConn Actuarial Center April 2008 Introduction This report studies the various benchmarks for analyzing the option-adjusted spreads of the major
More informationMay Link Richardson, CERA, FSA, MAAA, Chairperson
Recommended Approach for Updating Regulatory Risk-Based Capital Requirements for Interest Rate Risk for Fixed Annuities and Single Premium Life Insurance (C-3 Phase I) Presented by the American Academy
More informationUnderstanding BCAR for U.S. Property/Casualty Insurers
BEST S METHODOLOGY AND CRITERIA Understanding BCAR for U.S. Property/Casualty Insurers October 13, 2017 Thomas Mount: 1 908 439 2200 Ext. 5155 Thomas.Mount@ambest.com Stephen Irwin: 908 439 2200 Ext. 5454
More informationNAIC VA Reserve and Capital Reform: Overview of Proposed Revisions. Aaron Sarfatti
NAIC VA Reserve and Capital Reform: Overview of Proposed Revisions Aaron Sarfatti NAIC VA RESERVE AND CAPITAL REFORM OVERVIEW OF PROPOSED REVISIONS NOVEMBER 4, 06 Aaron Sarfatti, Partner aaron.sarfatti@oliverwyman.com
More informationRisks and Returns of Relative Total Shareholder Return Plans Andy Restaino Technical Compensation Advisors Inc.
Risks and Returns of Relative Total Shareholder Return Plans Andy Restaino Technical Compensation Advisors Inc. INTRODUCTION When determining or evaluating the efficacy of a company s executive compensation
More informationWhy invest in stocks?
Ian Mikkelsen, CFA, Associate Equity Sector Analyst Why invest in stocks? Why should someone invest in stocks? Historically, stocks have performed well when compared to other financial assets, and have
More informationNEW SOURCES OF RETURN SURVEYS
INVESTORS RESPOND 2005 NEW SOURCES OF RETURN SURVEYS U.S. and Continental Europe A transatlantic comparison of institutional investors search for higher performance Foreword As investors strive to achieve
More informationPost-NAIC Update/PBA Webinar
Post-NAIC Update/PBA Webinar August 30, 2012 Moderator: Dave Neve, FSA, MAAA, CERA Chairperson, American Academy of Actuaries Financial Soundness/Risk Management Committee All Rights Reserved. 1 Agenda
More informationRecommendation of the American Academy of Actuaries Life-Risk Based Capital Committee on Changes to the Covariance Treatment of Common Stock
Recommendation of the American Academy of Actuaries Life-Risk Based Capital Committee on Changes to the Covariance Treatment of Common Stock Presented to the National Association of Insurance Commissioners
More informationCHAPTER 17 INVESTMENT MANAGEMENT. by Alistair Byrne, PhD, CFA
CHAPTER 17 INVESTMENT MANAGEMENT by Alistair Byrne, PhD, CFA LEARNING OUTCOMES After completing this chapter, you should be able to do the following: a Describe systematic risk and specific risk; b Describe
More informationNAIC Update New Annuity Standard Nonforfeiture Law SEAC Spring Meeting Amelia Island, FL 6/19/03
NAIC Update New Annuity Standard Nonforfeiture Law SEAC Spring Meeting Amelia Island, FL 6/19/03 Paul Haley Sr. VP & Chief Actuary GE Financial Agenda SNFL for Fixed Annuities - Background - Environmental
More informationRESEARCH GROUP ADDRESSING INVESTMENT GOALS USING ASSET ALLOCATION
M A Y 2 0 0 3 STRATEGIC INVESTMENT RESEARCH GROUP ADDRESSING INVESTMENT GOALS USING ASSET ALLOCATION T ABLE OF CONTENTS ADDRESSING INVESTMENT GOALS USING ASSET ALLOCATION 1 RISK LIES AT THE HEART OF ASSET
More informationStochastic Modeling Concerns and RBC C3 Phase 2 Issues
Stochastic Modeling Concerns and RBC C3 Phase 2 Issues ACSW Fall Meeting San Antonio Jason Kehrberg, FSA, MAAA Friday, November 12, 2004 10:00-10:50 AM Outline Stochastic modeling concerns Background,
More informationLazard Insights. Distilling the Risks of Smart Beta. Summary. What Is Smart Beta? Paul Moghtader, CFA, Managing Director, Portfolio Manager/Analyst
Lazard Insights Distilling the Risks of Smart Beta Paul Moghtader, CFA, Managing Director, Portfolio Manager/Analyst Summary Smart beta strategies have become increasingly popular over the past several
More informationGeneral questions 1. Are there areas not addressed in the Guidance that should be considered in assessing risk culture?
To: Financial Stability Board (fsb@bis.org) From: Danny Saenz, Co-Chair, NAIC Group Solvency Issues (E) Working Group Date: January 30, 2014 Re: Comments Regarding December 23, 2013 Questions Regarding
More informationThe purpose of this paper is to briefly review some key tools used in the. The Basics of Performance Reporting An Investor s Guide
Briefing The Basics of Performance Reporting An Investor s Guide Performance reporting is a critical part of any investment program. Accurate, timely information can help investors better evaluate the
More informationDate: June 3, Lou Felice, Chair, NAIC Capital Adequacy (E) Task Force
Date: June 3, 2007 To: From: Lou Felice, Chair, NAIC Capital Adequacy (E) Task Force James Braue, Chair, American Academy of Actuaries 1 (Academy) Medicare Part D RBC Subgroup Darrell Knapp, Chair, Academy
More informationORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM BOARD OF RETIREMENT 2223 E. WELLINGTON AVENUE, SUITE 100 SANTA ANA, CALIFORNIA
ORANGE COUNTY EMPLOYEES RETIREMENT SYSTEM BOARD OF RETIREMENT 2223 E. WELLINGTON AVENUE, SUITE 100 SANTA ANA, CALIFORNIA INVESTMENT COMMITTEE MEETING Attendance was as follows: MINUTES Present: Absent:
More informationPrincipal LifeTime Hybrid 2010 CIT Z15 as of 12/31/2017
Principal LifeTime Hybrid 2010 CIT Z15 as of 12/31/2017 Investment Strategy The investment option seeks a total return consisting of long-term growth of capital and current income. To pursue its goal,
More informationResearch Brief. Using ETFs to Outsmart the Cap-Weighted S&P 500. Micah Wakefield, CAIA
Research Brief Using ETFs to Outsmart the Cap-Weighted S&P 500 Micah Wakefield, CAIA 2 USING ETFS TO OUTSMART THE CAP-WEIGHTED S&P 500 ETFs provide investors a wide range of choices to access world markets
More informationJuly 14, RE: Request for Feedback on the IAIS MOCE Proposal and the C-MOCE. Dear Tom,
July 14, 2015 Mr. Tom Sullivan Senior Adviser, Insurance Board of Governors of the Federal Reserve System 20th Street and Constitution Avenue N.W. Washington, D.C. 20551 RE: Request for Feedback on the
More informationExpected Return Methodologies in Morningstar Direct Asset Allocation
Expected Return Methodologies in Morningstar Direct Asset Allocation I. Introduction to expected return II. The short version III. Detailed methodologies 1. Building Blocks methodology i. Methodology ii.
More informationThe Submission of. William M. Mercer Limited. The Royal Commission on Workers Compensation in British Columbia. Part B: Asset/Liability Study
The Submission of William M. Mercer Limited to Workers Compensation Part B: Prepared By: William M. Mercer Limited 161 Bay Street P.O. Box 501 Toronto, Ontario M5J 2S5 June 4, 1998 TABLE OF CONTENTS Executive
More informationNAIC Fall Meeting. December Issues & Trends. kpmg.com/us/frv
NAIC Fall Meeting December 2017 Issues & Trends kpmg.com/us/frv Contents Meeting highlights... 1 Investments... 8 Principle-based reserving... 12 Variable annuities... 13 Group capital calculation... 15
More informationThis material has been prepared by Principal Trust Company, which is not affiliated with Prudential Retirement. Prudential Retirement serves as
This material has been prepared by Principal Trust Company, which is not affiliated with Prudential Retirement. Prudential Retirement serves as recordkeeper for your plan, but does not make any representations
More informationEQUITY-INDEXED ANNUITIES
Understanding EQUITY-INDEXED ANNUITIES 1997 Pictorial, Inc. Indianapolis, IN 46268-0520 www.pictorial.com e-mail: pictorial@pictorial.com fax: 317.879.2830 PRINTED IN U.S.A. This booklet was designed to
More informationImplementing Portable Alpha Strategies in Institutional Portfolios
Expected Return Investment Strategies Implementing Portable Alpha Strategies in Institutional Portfolios Interest in portable alpha strategies among institutional investors has grown in recent years as
More informationState Universities Retirement System of Illinois (IL SURS)
State Universities Retirement System of Illinois (IL SURS) Asset Liability Study April, 2014 Doug Moseley, Partner Kristin Finney-Cooke, CAIA, Sr. Consultant Kevin Leonard, Partner Timothy F. McCusker,
More informationPresented to the National Association of Insurance Commissioners Life Risk-Based Capital Working Group September 2000 Dallas, TX
Proposal of the American Academy of Actuaries Life-Risk Based Capital s Codification Subgroup on Changes to the C-1 Treatment of Schedule A Real Estate Presented to the National Association of Insurance
More informationRulemaking implementing the Exchange provisions, summarized in a separate HPA document.
Patient Protection and Affordable Care Act: Standards Related to Reinsurance, Risk Corridors and Risk Adjustment Summary of Proposed Rule July 15, 2011 On July 15, 2011, the Department of Health and Human
More informationMGT201 Financial Management All Subjective and Objective Solved Midterm Papers for preparation of Midterm Exam2012 Question No: 1 ( Marks: 1 ) - Please choose one companies invest in projects with negative
More informationLow trubeta Indices Index Methodology November 2018
Low trubeta Indices Index Methodology November 2018 Version History No. Date Author Comments 1.0 11/1/2018 T. Barchetto Initial 1.1 12/26/2018 E.Bae TM to Change 2 Introduction Beta is widely familiar
More informationIdentifying a defensive strategy
In our previous paper Defensive equity: A defensive strategy to Canadian equity investing, we discussed the merits of employing a defensive mandate within the Canadian equity portfolio for some institutional
More informationAdvisor Briefing Why Alternatives?
Advisor Briefing Why Alternatives? Key Ideas Alternative strategies generally seek to provide positive returns with low correlation to traditional assets, such as stocks and bonds By incorporating alternative
More informationNasdaq Chaikin Power US Small Cap Index
Nasdaq Chaikin Power US Small Cap Index A Multi-Factor Approach to Small Cap Introduction Multi-factor investing has become very popular in recent years. The term smart beta has been coined to categorize
More informationDynamic Smart Beta Investing Relative Risk Control and Tactical Bets, Making the Most of Smart Betas
Dynamic Smart Beta Investing Relative Risk Control and Tactical Bets, Making the Most of Smart Betas Koris International June 2014 Emilien Audeguil Research & Development ORIAS n 13000579 (www.orias.fr).
More informationThe Bond Market WHAT IS A BOND?
The Bond Market Giancarlo Perasso Lecture 1, 8 November 2010 Course in Global Markets and Economic Policies I used to think if there was reincarnation, I wanted to come back as the president or the pope
More informationDeveloping a reserve range, from theory to practice. CAS Spring Meeting 22 May 2013 Vancouver, British Columbia
Developing a reserve range, from theory to practice CAS Spring Meeting 22 May 2013 Vancouver, British Columbia Disclaimer The views expressed by presenter(s) are not necessarily those of Ernst & Young
More informationHigh trubeta TM Indices
High trubeta TM Indices Index Methodology November 2018 Version History No. Date Author Comments 1.0 1/31/2018 T. Barchetto Initial 1.1 11/1/2018 T. Barchetto Name change 2 Introduction Beta is widely
More informationAll In One MGT201 Mid Term Papers More Than (10) BY
All In One MGT201 Mid Term Papers More Than (10) BY http://www.vustudents.net MIDTERM EXAMINATION MGT201- Financial Management (Session - 2) Question No: 1 ( Marks: 1 ) - Please choose one Why companies
More informationAsset Adequacy Analysis Whys and Hows William M. Sayre December 5, 2003
Asset Adequacy Analysis Whys and Hows William M. Sayre December 5, 2003 With the turning of the leaves in the Fall, many valuation actuaries turn their attention to the analysis needed to complete an Actuarial
More informationComparison of OLS and LAD regression techniques for estimating beta
Comparison of OLS and LAD regression techniques for estimating beta 26 June 2013 Contents 1. Preparation of this report... 1 2. Executive summary... 2 3. Issue and evaluation approach... 4 4. Data... 6
More informationOhio IASA. Annual Statement Update Statement Reporting Changes. Ohio IASA November 23, 2015 Connie Jasper Woodroof StoneRiver, NAIC Liaison
Annual Statement Update Ohio IASA November 23, 2015 Connie Jasper Woodroof StoneRiver, NAIC Liaison Proprietary 2015 StoneRiver, Inc. Agenda 2015 Statement 2015 RBC Investment Projects 2015 Statement Reporting
More informationRegulatory Update: Hybrid Securities and Risk Based Capital October 19, 2006
2006 Annual Meeting & Education Conference American College of Investment Counsel New York, NY Regulatory Update: Hybrid Securities and Risk Based Capital October 19, 2006 Chris Anderson Merrill Lynch
More informationKEIR EDUCATIONAL RESOURCES
INVESTMENT PLANNING 2015 Published by: KEIR EDUCATIONAL RESOURCES 4785 Emerald Way Middletown, OH 45044 1-800-795-5347 1-800-859-5347 FAX E-mail customerservice@keirsuccess.com www.keirsuccess.com 2015
More informationNAIC Spring 2017 National Meeting Update
NAIC Spring 2017 National Meeting Update Market Insight Paper Pg. 2 Pg. 4 Pg. 5 Pg. 6 Statutory Accounting Principles Working Group (SAPWG) Dedicated to maintaining accounting principles and providing
More informationQuantitative Measure. February Axioma Research Team
February 2018 How When It Comes to Momentum, Evaluate Don t Cramp My Style a Risk Model Quantitative Measure Risk model providers often commonly report the average value of the asset returns model. Some
More informationCatastrophe Exposures & Insurance Industry Catastrophe Management Practices. American Academy of Actuaries Catastrophe Management Work Group
Catastrophe Exposures & Insurance Industry Catastrophe Management Practices American Academy of Actuaries Catastrophe Management Work Group Overview Introduction What is a Catastrophe? Insurer Capital
More informationNAIC 2015 Spring Meeting
Issues & Trends In Insurance April 2015, No. 15-3 NAIC 2015 Spring Meeting National Association of Insurance Commissioners (NAIC) groups continued to discuss initiatives related to captives and special
More informationTHE CLEARWATER GUIDE TO ADDITIONAL ASSET CLASSES. Investment Accounting and Reporting Considerations
ADDITIONAL ASSET CLASSES THE AND CONSIDERATIONS CLEARWATER GUIDE TO NON-TRADITIONAL ASSET CLASSES Investment Accounting and TABLE OF CONTENTS INTRODUCTION 2 GUIDE TO THE GUIDE 3 THE ASSET TYPES Direct
More informationConvertible bond investing Invesco s Convertible Securities Strategy
1 Convertible bond investing Invesco s Convertible Securities Strategy Introduction to convertible bonds A primer Convertible securities provide investors the opportunity to participate in the upside of
More informationFocusing on hedge fund volatility
FOR INSTITUTIONAL/WHOLESALE/PROFESSIONAL CLIENTS AND QUALIFIED INVESTORS ONLY NOT FOR RETAIL USE OR DISTRIBUTION Focusing on hedge fund volatility Keeping alpha with the beta November 2016 IN BRIEF Our
More informationKatie Campbell, FSA, MAAA
Agenda for Webcast Principle-Based Approach Update 17 December 14, 2009 Donna Claire, FSA, MAAA, CERA Chair, American Academy of Actuaries Life Financial Soundness / Risk Management Committee (AKA PBA
More informationSurvey of Capital Market Assumptions
of Capital Market Assumptions 2014 Edition Introduction Horizon Actuarial Services, LLC is proud to serve as the actuary to roughly 80 multiemployer defined benefit pension plans across the United States
More informationManagement s Responsibility for Financial Reporting
ONTARIO TEACHERS PENSION PLAN 2009 ANNUAL REPORT 69 Management s Responsibility for Financial Reporting The consolidated financial statements of the Ontario Teachers Pension Plan have been prepared by
More informationStochastic Analysis Of Long Term Multiple-Decrement Contracts
Stochastic Analysis Of Long Term Multiple-Decrement Contracts Matthew Clark, FSA, MAAA and Chad Runchey, FSA, MAAA Ernst & Young LLP January 2008 Table of Contents Executive Summary...3 Introduction...6
More informationRe: VAIWG Exposure of Proposed Changes to Actuarial Guideline 43 and C-3 Phase II
November 14, 2016 Commissioner Nick Gerhart Chair, Variable Annuities Issues (E) Working Group (VAIWG) National Association of Insurance Commissioners (NAIC) Re: VAIWG Exposure of Proposed Changes to Actuarial
More informationPrincipal LifeTime Hybrid 2010 CIT I25 as of 03/31/2017
Principal LifeTime Hybrid 2010 CIT I25 as of 03/31/2017 Investment Strategy The investment option seeks a total return consisting of long-term growth of capital and current income consistent with the investment
More informationOTHER ALTERNATIVES CONSIDERED:
Page AGENDA City Council Study Session 6:30 PM - Monday, March 5, 2018 City Hall Council Chambers, Sammamish, WA CALL TO ORDER Estimated Time 6:30 PM TOPICS 2-34 1. Discussion: Intersection-Based Traffic
More informationUnderstanding BCAR for U.S. and Canadian Life/Health Insurers
BEST S METHODOLOGY AND CRITERIA Understanding BCAR for U.S. and Canadian Life/Health October 13, 2017 George Hansen: 908 439 2200 Ext. 5469 George.Hansen@ambest.com Stephen Irwin: 908 439 2200 Ext. 5454
More informationChapter 5. Asset Allocation - 1. Modern Portfolio Concepts
Asset Allocation - 1 Asset Allocation: Portfolio choice among broad investment classes. Chapter 5 Modern Portfolio Concepts Asset Allocation between risky and risk-free assets Asset Allocation with Two
More informationReturns on Small Cap Growth Stocks, or the Lack Thereof: What Risk Factor Exposures Can Tell Us
RESEARCH Returns on Small Cap Growth Stocks, or the Lack Thereof: What Risk Factor Exposures Can Tell Us The small cap growth space has been noted for its underperformance relative to other investment
More informationCOUNTY OF SAN BERNARDINO
COUNTY OF SAN BERNARDINO DEFINED CONTRIBUTION PLANS AND RETIREMENT MEDICAL TRUST PLAN INVESTMENT POLICY STATEMENT A DOPTED A PRIL 29, 2003 A MENDED J UNE 8, 2004 A MENDED J ULY 19, 2005 A MENDED J UNE
More informationASC Topic 718 Accounting Valuation Report. Company ABC, Inc.
ASC Topic 718 Accounting Valuation Report Company ABC, Inc. Monte-Carlo Simulation Valuation of Several Proposed Relative Total Shareholder Return TSR Component Rank Grants And Index Outperform Grants
More informationLDI approaches have been adopted by an increasing
Quarterly Focus Customizing LDI By Aaron Meder Liability driven investing (LDI) is emerging as best practice for corporate plan sponsors. LDI approaches have been adopted by an increasing number of institutions.
More informationVolatility-Managed Strategies
Volatility-Managed Strategies Public Pension Funding Forum Presentation By: David R. Wilson, CFA Managing Director, Head of Institutional Solutions August 24, 15 Equity Risk Part 1 S&P 5 Index 1 9 8 7
More informationC.1. Capital Markets Research Group Asset-Liability Study Results. December 2016
December 2016 2016 Asset-Liability Study Results Capital Markets Research Group Scope of the Project Asset/Liability Study Phase 1 Review MCERA s current investment program. Strategic allocation to broad
More informationAggregate Margin Task Force: LATF Update
Aggregate Margin Task Force: LATF Update Mark Birdsall, FSA, MAAA William Hines, FSA, MAAA Tricia Matson, MAAA, FSA Aggregate Margin Task Force American Academy of Actuaries All Rights Reserved. Agenda
More informationFactor Investing: Smart Beta Pursuing Alpha TM
In the spectrum of investing from passive (index based) to active management there are no shortage of considerations. Passive tends to be cheaper and should deliver returns very close to the index it tracks,
More informationAll Alternative Funds are Not Equal
May 19 New York All Alternative Funds are Not Equal Patrick Deaton, CAIA, Senior Vice President, Alternatives, Neuberger Berman David Kupperman, PhD, Managing Director, Alternatives, Neuberger Berman Today
More informationTurner Investments 1205 Westlakes Drive - Suite 100 Berwyn, Pennsylvania 19312
Turner Investments 1205 Westlakes Drive - Suite 100 Berwyn, Pennsylvania 19312 PRODUCT OVERVIEW The investment objective of the Turner Select portfolio is to outperform the Russell 1000 Growth Index over
More informationPractical Considerations for Building a D&O Pricing Model. Presented at Advisen s 2015 Executive Risk Insights Conference
Practical Considerations for Building a D&O Pricing Model Presented at Advisen s 2015 Executive Risk Insights Conference Purpose The intent of this paper is to provide some practical considerations when
More informationSOA Risk Management Task Force
SOA Risk Management Task Force Update - Session 25 May, 2002 Dave Ingram Hubert Mueller Jim Reiskytl Darrin Zimmerman Risk Management Task Force Update Agenda Risk Management Section Formation CAS/SOA
More information