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Cell Level Scenario Reserve (February, 2010)

Article Summary:

This new feature in the Stochastic Processing module allows policy level reserves to be calculated as a statistical measure of “initial total asset requirement” determined under a selected set of scenarios. Currently, this new feature is available for reserve calculations in the Annuity module.

The “initial total asset requirement” can be based on the present value of either all cashflow or only cashflow related to guarantees being modeled (i.e. guarantee benefits and guarantee charges). Examples of statistical measures supported are mean and conditional tail expectation (CTE).

This new feature can be a standalone reserve when the reserve method selected is "15 - Scenario reserve" or as an addition to a fund based reserve. At each reserve revaluation point (or “pivot date”), the reserve for each policy or seriatim record is calculated as a statistical measure of “initial total asset requirement” across the selected set of scenarios. Unless reserve revaluation is set to be done for every reserve reporting period, reserve for periods between adjacent pivot dates can be estimated using a variety of interpolation options.

Any product feature and projection assumption referencing the scenario would automatically reflect the valuation scenarios provided. In addition, valuation illustration and projection assumptions at the reserve revaluation date can be specified in the sub-section "Accumulation phase reserve recalculation" within the Reserve section of the cell assumption screen. Modification formula tables can also be used to adjust assumption by revaluation date.


The following factors need to be considered when deciding whether to use this new feature:

  1. Are aggregate reserve calculations needed?

The cell level scenario reserve is on a seriatim (or model point) basis and is meant to be used as an approximation. That means, for a proper CALM, C3P2, or VACARVM exercise, the embedded block is still the correct and recommended approach.

  1. Are assets and reinvestment strategies needed in the calculations?

At the cell level on the liability side, assets and reinvestment strategies cannot be handled, except with the approximation using the interest rate table to link the assumed earned rate to rates specified in scenarios (e.g. using the multiple account interest rate table to mimic liability matching strategy).

  1. The current functionalities offered by this new feature are best suited for pricing exercises in which profit measures are on a model point basis and only a few model points are modeled. This new feature is suitable to calculate embedded options.

Other References:

For more information please refer to the Scenario Reserve Help Text: https://ggy.com/htmlhelp/axis/49066.htm




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