AXIS Enhancements For 2014 CIA Revisions To Economic Reinvestment Assumptions (March, 2015)
This article provides a summary of the AXIS enhancements related to the revisions in the Actuarial Standards Board Document 214047 “Final Standards – Revisions to Economic Reinvestment Assumptions within the Practice-Specific Standards on Insurance Contract Valuation: Life and Health (Accident and Sickness) Insurance (Section 2300 and Subsection 1100)” released in May 2014. For each item below, the relevant sections of the CIA Standards are shown in brackets.
i. Non-fixed income assets cap (Section 2340.14.1)
- This feature is available in the Reinvestment Strategy object, Allocation Maximums section. This was under beta feature #340 (activated in version 2013.09.02 and removed from beta in version 2015.02.02). Related enhancement request is #34777 "Support New Proposed Constraint On Non Fixed Income Assets (CALM)" in version 2013.09.02.
- An additional related enhancement was implemented in request #37601 "Allocate XYZ Allocation Maximum To Multiple Reinvestment Categories" in version 2014.10.02.
ii. CALM Scenario Generation (prescribed scenarios in Section 2300)
- Due to the revisions of the prescribed CALM scenarios since the initial draft of the CIA Standards and the release of the CIA Education Note in September 2014, this feature has been under beta development.
- In versions 2014.02.02 to 2015.02.01 (including 2014 Maintained): This feature is under beta feature #340 in these versions. The feature is available as "Output Functions" named "SetCalmBaseScenario_2013" and "SetCalmScenarioX_2013" (where "X" can be "1" to "8") in Valuation Scenario Formula Table. The related enhancement requests are #35719 and #38336.
- Starting in version 2015.02.02: A new set of "Output Functions" named "SetCalmBaseScenario_2014" and "SetCalmScenarioX_2014" is available under beta feature #419 and replaces the corresponding "2013" set mentioned above. The "2014" set was developed from the "2013" set by revising the interpolation methods used to determine interest rates for terms on the yield curve that are between the "short term" and the "long term" specified in the Output Functions. For terms after the "long term", extrapolation is done assuming level forward rates in both sets. Given the same inputs, both sets of Output Functions generate the same rates for the two terms - "short term" and "long term" – on the yield curve according to the prescribed methodology for the CALM scenarios. Also, the "2013" set is moved to feature-to-be-removed #415 (and has been removed starting in version 2017.22.01) and should not be used in any new model development work. The related enhancement request is #38777.
- Starting in version 2015.03.02: Request #38779 "CALM 2014 Scenarios Enhancements" has been implemented to provide for the following options:
- Interpolation – For terms between the "short term" and the "long term" specified - can be done based on either a linear interpolation of the "short term" rate and the "long term" rate or the assumed shape of the yield curve reflected by the trend in historical scenario data.
- Extrapolation – For terms longer than the "long term" specified – can be done by using one of the three assumptions: a level implied forward rate after the "long term" or a level par rate after the "long term" or based on the assumed shape of the yield curve reflected by the trend in historical scenario data.
- For "SetCalmScenarioX_2014" functions: Please use version 2015.03.02 or later to take advantage of bug fix in request #39260 related to prescribed scenarios 1, 2, 7 and 8.
- We have provided a sample script in Knowledge Base article 1908 using the new "SetCalmBaseScenario_2014" Output Function to generate the forward interest rates in the first 20 projection year implied by the risk-free market curve at valuation date using methodology consistent to that illustrated in the Appendix A of the CIA Education Note.
iii. Credit Spread and Margins on Credit Spread (Section 2340.10.1, 2340.10.3)
- The features were initially implemented in version 2015.02.02 and has been revised in request #40074 “Enhanced Credit Spread Margin Functionality” implemented in version 2015.08.02. Please upgrade to version 2015.08.02 or later to make use of these features.
- In version 2015.12.02, an enhancement was implemented in request #40313 “Term Structure For Ultimate Best Estimate Credit Spread” to support a term structure for the specification of the best estimate credit spread applicable at and after the fifth anniversary of the valuation date.
- The features involve setup in the Market Value and Margins sections of Asset Cells, Reinvestment Cells and in Matching Strategy objects for on-the-fly assets. For details, Knowledge Base article 1906 “Examples for setting 2014 CALM Credit Spread Assumptions” linked below.
iv. Maximum Net Credit Spread (Section 2330.07.01)
Upon further client feedback and review, this feature has been revised in request #40312 “Revise Maximum Net Credit Spread Logic” implemented in version 2015.11.01. Please upgrade to version 2015.11.01 or later to make use of this feature.
- This feature is under beta feature #413 “Max Net Credit Spread”.
- The feature involves setup in the Margins section of Asset Cells, Reinvestment Cells and in Matching Strategy objects for on-the-fly assets. For details, please see Knowledge Base article 1906 “Examples for setting 2014 CALM Credit Spread Assumptions” linked below.
For items (iii) and (iv) above, for your information, the attached document “Features on Credit Spread for CALM – Development Timeline” shows the development history.
v. Margin on income assumptions of non-fixed income assets (section 2340.13.01)
- At this point, no enhancement request is planned for this item based on feedback collected that more income rate assumptions are set based on market value of these non-fixed income assets.