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Multiple Reserves, Required Funds and Financials (October, 2009)

Article Summary:

This article describes features related to the new Book Profit Financials in Liability Subfund, Fund and Office. The new features described in this article are available in AXIS starting with version 12502001.


New “Reserves” Section

The new "Reserves" section was added to the Liability Subfund and Fund assumption screens. At the Subfund and Fund levels, the new section allows the user to adjust the deferred tax liability (DTL) included in Statutory reserves, Second reserves, Third reserves, Fourth reserves and Fifth reserves. Previously, the user could only modify the DTL in the Net actuarial reserve.

At the Fund level, five new Reserve Revaluation formula table fields were added to the Reserves section. The new fields can be used to recalculate Statutory reserves, Second reserves, Third reserves, Fourth reserves or Fifth reserves using Embedded Blocks. (Previously, the user could not select two or more Reserve Revaluation formula tables in the Reserves section.) The primary benefit of the new table fields is that stochastic reserves can now be selected in the Alternative Financials. Alternative Financials is an optional category report that displays an alternative Income Statement and Balance Sheet by using a different reserves and total asset requirement.

First, Second and Third Required Fund Sections

The new “Second Required Fund” and “Third Required Fund” sections were added to the Liability Subfund, Fund and Office assumption screens and the old “Required Surplus” section has been renamed to “First Required Fund.” These enhancements allow the user to perform up to three aggregate Required Fund calculations. Previously, the user could only recalculate the First required fund.

Moreover, each Required Fund section offers a new approach to recalculate the total asset requirement. In the past, if a user wanted to recalculate the required capital, they had to fully define the required capital factors again at the current level. The new “Additional Required Capital table” in the “RC component” table field allows the user to calculate an additional required capital based on the changes in the reserves in the current level. The new table also allows the user to fully recalculate C1 required capital.

For example, suppose NAIC Risk Based Capital (in the First Required Fund) was calculated based on US Statutory reserve (in Statutory reserves). At the Subfund level, an additional liability was added to all reserves. The new “Additional Required Capital table” can be used in the First Required Fund to calculate an additional Risk Based Capital based on the increase in the Statutory reserves while preserving the Risk Based Capital from the Cell level.

New Book Profit Financials Section

The new "Book Profit Financials" section was added to the Liability Subfund, Fund and Office screens and the Net actuarial reserve table field has been renamed to Book profit reserve. Book Profit Financials is simply the main financial report in AXIS that appears in the main Calendar Year Report.

In the past, Book Profit Financials uses Net actuarial reserve and the required surplus in the First Required Fund to build its Balance Sheet and Income Statement. The new “Book Profit Financials” section allows the user to select any reserve (via Book profit reserves) and any total asset requirement for the construction of the main financial report. This enhancement, along with the GAAP Financials, NAIC Financials and Alternative Financials, should give the user the flexibility to analyze profit measures under various financial reporting bases.

An Illustration

Suppose the user already has the following setup at the Cell, Subfund and Fund levels:
 

AXIS Sections

Reserves and Capital Requirements

Statutory Reserves

US Statutory Reserves

Second Reserves

US GAAP Reserves

Third Reserves

Best estimate liabilities plus cost of capital

First Required Fund

NAIC Risk Based Capital (based on Statutory Reserves)

Second Required Fund

Solvency capital requirement (based on Third Reserves)

The user can now construct the following financial statements using the new features:
 

Book Profit Financials - GAAP Reserves (in Second Reserves)
- Solvency capital requirement (in Second Required Fund)

GAAP Financials - GAAP Reserves (in Second Reserves)
- NAIC Risk Based Capital (in First Required Fund)

NAIC Financials - US Statutory Reserves (in Statutory Reserves)
- NAIC Risk Based Capital (in First Required Fund)

Alternative Financials - Best estimate liabilities plus cost of capital (in Third Reserves)
- Solvency capital requirement (in Second Required Fund)

If you have any questions about these enhancements, please contact us though our website client portal (www.ggy.com/Client/).

 

 

 

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