Discuss the benefits of economic growth.
(9 points) ABC Insurance Group is a US-based corporation that sells only nonparticipating whole life and accident policies. ABC reports GAAP financials based on FAS 60. ABC is being acquired by an insurance group based in the European Union and will report financials on both an IFRS and US GAAP basis. (a) (2 points) Compare the methodology and assumptions used to calculate ABC's liabilities under IFRS 17 and ASU 2018-12. You are given: Present value of cash flows 1,000 Risk Adjustment 250 Contractual Service Margin 100 Liability for Incurred Claims 475 Incurred But Not Reported (IBNR) 500 Other Assets 2,000 Liability for future policyholder benefits 1,280 GAAP - DAC 100 (b) (3 points) Calculate ABC's equity under both ASU 2018-12 and IFRS 17. Assume that the basis of Other Assets is the same under both regimes. Show all work. (c) (4 points) Critique the following statements regarding the Insurance Capital Standard (ICS) guided by International Association of Insurance Supervisors (IAIS). A. The main objectives of the ICS are protection of shareholders and to contribute to financial growth. B. The ICS reflects only insurance and investment risks to which an International Active Insurance Group (JAIG) is exposed. C. The capital requirement in the ICS is intended to represent a three-year 95 percentile Conditional Tail Expectation (CTE) level of risk. D. Currently, the only approach being considered to estimate margin over current estimates (MOCE) is the Cost of Capital MOCE approach, which is based on an assumed cost of holding ICS required capital.(12 points) Assume VM-21 as written in the 2018 Valuation Manual. (a) (# points) You are given the following information from a VM-21 model for a variable deferred annuity: Premium Partial Account Deposits Withdrawals Balance 100.000 0 90.000 0 110,000 0 2,000 150.000 0 2,000 140.000 0 2,000 170,000 Assume: Premium deposits and partial withdrawals occur at beginning of year Account balance is end of year Guaranteed minimum death benefit: annual 5% roll up Guaranteed minimum withdrawal benefit: one-year ratchet with a 5% withdrawal rate and a two-year waiting period (i) Calculate the death benefit at the end of each year. Show all work. (ii) Calculate the guaranteed minimum withdrawal benefit available each year. Show all work. (iii) Assess whether the Alternative Methodology can be used for the valuation of this product. (b) (2 points) You are given the following output from a VM-21 model: Stochastic Output Scenario Largest Discounted Rank Accumulated Deficiency 2.000,000 1.000,000 750,000 500,000 250.000 0 Starting asset level is 300,000 Number of stochastic scenarios is 100 Standard scenario amount is 400,000 Calculate the VM-21 reserve. Show all work.(c) (5 points) You are given the following results from a VM-21 model with three subgroupings: Results for each subgroup Subgroup A Subgroup B Subgroup C Conditional Tail 120,000,000 79_000.000 160,000.000 Expectation Amount Standard Scenario 110,000,000 85,000,000 155,000.000 Amount Cash Surrender Value 90.000.000 70,000,000 145,000,000 Results for two policies in Subgroup A Policy 1 Policy 2 Basic Adjusted Reserve 198,000 159,100 Cash Surrender Value 200,000 160,000 Greatest Present Value of Negative Accumulated Net Revenue 2.400 800 Assume: Both policies have a GMDB and a GMWB No reinsurance or hedging Calculate the VM-21 reserve for Policy 1 and Policy 2. Show all work. (d) (/ point) You are given the following results from a VM-21 model for Policy 3. Policy 3 General Separate Total Account Account Account Value (AV) 1.000 199.000 200.000 Cash Surrender Value (CSV) 920 183.080 184.000 Basic Reserve (GA/SA 950 189,050 190,000 proportional to AV) VM-21 Reserve 3,950 189.050 193,000 Calculate the tax reserves for Policy 3 according to the 2017 Tax Cuts and Jobs Act (TCJA)
