Interest Rate Risk – (C-3)

  • SOA
  • C-3 Risk
  • Committee on Valuation and Related Problems – Trowbridge Committee

C. L. Trowbridge coined the term C-3 risk to denote the risk of losses due to changes in interest rates.

1988 – SOA – Algorithms for Cash-Flow Matching, /tsa88v40pt115 – Society of Actuaries – 8p

  • My last point is beyond interest rate risk.
  • The credit crunch was an event risk in the credit markets.
  • Even if you had the latest and greatest interest-rate-risk model, it did not envision this type of event risk.
  • The warning is to be careful for these “other risks.”
  • When you think you understand everything that can happen, something new happens.

—  Anthony Dardis

1994 – SOA – Asset / Liability Management (ALM): AN International Perspective, Society of Actuaries – 18p 

  • In many jurisdictions, insurance companies have expended significant efforts to understand the sensitivity of their investment portfolios to underlying market risks, especially interest rate risk.

2001 11 – BIS / The Joint Forum – Risk Management Practices and Regulatory Capital Cross-Sectoral Comparison – 126p

  • The mismatch between the cash flows from assets and liabilities for traditional products like universal life or fixed annuities is due mostly to interest rate risk. (p18)

2018 – IAIS – GIMAR – Global Insurance Market Report – 72p

  • 1981 – SOA – The Impact of Inflation on Insurance and Annuity Reserve Valuation: The C-3 Risk, Society of Actuaries – 44p
  • 1982 – SOA – The Financial Risk to Life Insurance Companies from Changes in Interest Rates, rsa82v8n13 – Society of Actuaries – 56p
  • 1985 – SOA – Measuring the Interest Rate Risk,  Paul R. Milgrom,  Society of Actuaries – 62p
  • 2002 – SOA – Phase 2 Of The C-3 Project Update, rsa02v28n175pd – Society of Actuaries – 26p
  • The December 12, 1981 report on this subject discussed the risk of loss to a life insurance company from changes in the interest rate environment (now commonly referred to as “(C3) risk”), and its implications for actuarial opinions of reserve adequacy and minimum surplus tests.
  • We noted a number of important projects underway and indicated chat we would monitor the projects and report to the TSAG on progress in the spring of 1982.
  • We do that with this report.

1982-2, NAIC Proceedings

  • Life insurance companies are also largely exposed to interest rate risks through long-term life insurance products with guaranteed interest rates. (p20)

2001 11 – BIS / The Joint Forum – Risk Management Practices and Regulatory Capital Cross-Sectoral Comparison – 126p

  • A major problem facing the insurance industry today is interest rate fluctuations.
  • If the terms of the assets are shorter than those of the corresponding liabilities, reinvestment risk arises because interest rates can fall.
  • On the other hand, if assets are invested longer than liabilities, then disinvestment risk exists because interest rates can rise.

1988 – SOA – Algorithms for Cash-Flow Matching, Society of Actuaries – 8p

2013 NAIC State of the Life Insurance Industry p137 2013 NAIC State of the Life Insurance Industry p137