2008 MCCSR Seg Fund Capital Requirements (February, 2009)
Article Summary:
OSFI revised the rules for segregated fund guarantee capital requirements, effective for 2008 yearend. Both the Annuity Module and Stochastic Processing module have been enhanced to assist in the determination of the segregated fund guarantee capital requirement.
This article describes the functionalities that can be used to assist in the determination of the segregated fund guarantee capital requirement, as permitted under the revised MCCSR Guidelines December 2008.
Segregated Fund Guarantee Capital Requirement Using An Approved Internal Model
A) On October 28, 2008, OSFI released new minimum capital rules for segregated fund guarantee obligations for life insurers that have approval to use internal models.
In the February release of AXIS (version 12.4.01.001), the following functionalities have been added to the Stochastic Processing module that allow users to group cash flow into different categories according to their expected dates:
 The new line "PV of pretax CF on discount rate" has been added to the Block Calendar Year report. This line shows the present value at the valuation date of the pretax liability cash flows up to the end of that particular month.
 The new function "Block:Difference" has been added in the Block Summary report. Given a Block calendar year line, this function returns the difference between the value at the specified end month and the value at the specified start month.
The present value of cash flows 1 year or less can be obtained by taking the present value at the end of year 1.
The present value of cash flows greater than 1 year and less than or equal to 5 years can be obtained by taking the difference between the present value at the end of year 5 and the present value at the end of year 1.
The present value of cash flows greater than 5 years can be obtained by taking the difference between the present value at the end of the projection period and the present value at the end of year 5.
B) On April, 2009, OSFI revised the advisory providing technical information on how the Alternative Method is to be implemented.
In the Block summary report, there is a switch in the Summary cell properties screen that you may choose to "Use all scenarios" or to "Use scenarios from cell". When "Use all scenarios" is selected, the chosen summary option in the current cell is calculated based on the entire scenario set. When "Use scenarios from cell" is selected, the chosen summary option in the current cell is calculated based on the underlying scenarios used to calculate the reference cell. A sample block summary report is attached below to demonstrate the calculations of various total requirements.
For example, suppose a reference cell has been set up to calculate CTE 90% based on the entire scenario set of 5000 scenarios, the result will be based on the worst 1000 scenarios. In the current cell, when the Summary option is set to a CTE 50% level and "Use scenarios from cell" is selected and linked to the reference cell, the result in the current cell will be calculated based on the worst 500 scenarios from the reference cell.
To support the projection of future segregated fund guarantee capital, the following functionalities have been added to Embedded Block:
 A new output function “SetOutputValues” has been added in the Extra required surplus formula table. This function can be used to store the intermediate values for interpolation in the Final Extra RS Adjustment formula table.
 Three new input functions “GetInputValues”, “GetBaseReserveThisMonth”, and “GetInitialPreQReqCapitalForGroup3” have been added in the Final Extra RS Adjustment formula table. These functions can be used to facilitate the interpolation between the previous quarter’s required capital for cash flows greater than 5 years and the current quarter’s required capital for cash flows greater than 5 years.
Segregated Fund Guarantee Capital Requirement Using Prescribed Factors
On December 24, 2008, OSFI released an advisory describing an alternative factorbased method that is broadly consistent with the alternative method for companies with an approved internal model.
The overview of alternative method can be found in help text “Seg Fund Alternative Factor Method, YearEnd 2008”.
To use the new Alternative FactorBased Method at the Cell level, select the existing "Seg Fund Factor Method 2005" formula table and set the output variable "CTELevel" to "CTE_2008_METHOD."
At each calculation date, AXIS will categorize the current policy into one of three groups based on timetomaturity and attained age. Policyspecific total requirement is then calculated depending on the group to which this policy is assigned at each calculation date. The total requirement for the cell is the sum of the calculated policyspecific total requirement.
The CTE(80) and CTE(95) total requirements for each group are stored in the Required Surplus Category Report.
At the Subfund level and Fund level, the new switch “Seg fund factor method” and scalar "Previous quarter seg fund required capital for group 3 ($000's)" have been added to calculate the segregated fund factor required capital at subsequent quarters. .
For detail steps, please refer to the help text “Seg Fund Alternative Factor Method, YearEnd 2008”.
If you have questions on any of these revisions and how AXIS supports the required surplus calculations, please contact us through our website client portal (www.ggy.com/Client/).
