2016 - IAIS - Risk-based Global Insurance Capital Standard Version 1.0
- 2016 0710 - IAIS - Risk-based Global Insurance Capital Standard, Version 1.0 - Public Consultation Document - Comments due by 19 October 2016 - 175p
4.1 Market adjusted valuation (MAV) approach
Q20 Section 4.1.4.4 - Which approach to portfolio selection, as a basis for the calculation of the credit spread adjustment, is more appropriate for the MAV approach, taking into account the need to ensure a balance between complexity, comparability and basis risk? Please explain.
- (p126) - NAIC - National Association of Insurance Commissioners
- At least when writing longer term business such as life insurance, it is desirable for assets and liabilities to match.
- Since the liabilities should be addressed on the individual insurer's portfolio (see our response to Q21), we would like to see a parallel approach to the ICS portfolio selection (i.e. spreads calculated by firms based on actual asset returns or a weighted average of multiple reference portfolios linked to the assets held by the firm).
- At least when writing longer term business such as life insurance, it is desirable for assets and liabilities to match.
- (p165) - NAIC - Policyholder protection is enhanced when entities aspire, do and demonstrate
matching of assets to their liabilities. See also our response to Q21.1. - Q23 Section 4.1.4.4 Should insurance liabilities be segregated into buckets for the purpose of applying the credit spread adjustment?
- Q23.1 Section 4.1.4.4 If “yes” to Q23, which criteria are appropriate to allocate liabilities to the different buckets?
6.5 Management actions - 18p
Q101 Section 6.5.3.1 Are there examples of other instances for which an extension of management actions to allow for the recognition of premium adjustments may be appropriate? Please explain.
- NAIC - National Association of Insurance Commissioners
- Management actions should only be recognized in limited circumstances where there is a written documented plan which has been shown to have been used in the past.
- In such circumstances we agree that adjustments to amounts credited to policyholders such as reductions as a result of increased cost of insurance charges (for example for universal life plans) may be taken into consideration.
- The reason that management actions should be able to withstand a “use” test is that caution should be used in circumstances where companies may be subject to reputational risk.
- ACLI
- ACLI believes that rate actions such as COI increases should be allowed.
- We understand that rate actions might precipitate other policyholder actions such as increased lapses and possibly reputational risk.
- Such policyholder behavior sensitivity could be captured by reasonable dynamic lapse assumptions.
6.8 Lapse Risk - 34p
- (23-24) - NAIC - National Association of Insurance Commissioners
- The experience during the Global Financial Crisis (GFC) and at other times appears to suggest that mass lapse bank-like runs on insurers, are rare, and did not occur in the GFC.
- Such events are less likely to be significantly related to product features than to psychological, economical and stay driven features.
- For instance, if there is a general loss of confidence in the insurance market, in a particular insurer, or a severe need for cash, policyholders may flee regardless of their surrender strain position.
- (p24) - While reputation risk can be a highly likely trigger for mass surrenders, it is not linked to product features.
- InsuranceEurope
- (p24) - An application only to those policies which are adversely affected would not be appropriate. A mass lapse event may be triggered in particular by bad news / rumours in mass media / social media.
- GDV - Gesamtverband der Deutschen Versicherungswirtschaft - Germany
- (p26) - Mass lapses represent a reputational risk or “run on the bank” risk, not economic decision-making by policyholders.
- MetLife (p26)
- (p27) - When a mass lapse occurs, policyholder behavior is NOT likely to consider whether it will harm the company or not.
- MassMutual
- (p30) - When confidence is lost, policyholders will leave the company regardless of their surrender strain position.
- American Academy of Actuaries
Section 6.8 Lapse Risk - 2016 1019 - AAA -Comments - 1.0 - 12p
- Question 130: Should the mass lapse stress be applied only to surrenderable policies with positive surrender strain? Please explain.
- Response: No. When confidence is lost, policyholders will leave the company regardless of their surrender strain position.
- Furthermore, policyholders may not fully realize their current surrender strain position.
6.8 Lapse Risk - Comments - 34p
(p7) - Q124 Section 6.8.2 Is the stress level for Mass Lapse risk appropriate? Please explain. If “no”, please provide supporting evidence and rationale for a different stress level.
- (p9) - ICS shocks are 30% for retail and 50% for non-retail.
- These shocks seem appropriate for a stress test
- International Actuarial Association (IAA)