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Assignment 1: Due September 27, 2020: Insurance company assets balance sheet DATA: Company accounting year starts January 1 General Account January 1, 2017 January 1, 2018 January 1, 2019 January 1, 2020 January 1, 2021 (forecast) Book Value FY Book Value FY Book Value FY Book Value FY 2016, $ millions 2017, $ millions 2018, $ millions 2019, $ millions Forecast Market Value EY 2020, $ millions Scenario 1: Risk Weightings on Assets, % Scenario 2: Risk Weightings on Assets, % Liquid Assets - Listed Equities (stocks) - Government Bonds - Corporate Bonds (Aaa rated) - Cash & Currencies - Money markets funds 834.10 22,746.30 3,525.70 1,099.40 834.00 925.70 24,566.00 3,931.10 1,165.40 817.30 1,027.53 26,776.94 4,068.69 1,221.34 878.60 1,099.45 27,767.69 4,239.57 1,300.73 861.03 1,115.95 28,739.56 4,154.78 1,118.62 800.75 95.0% 100.0% 95.0% 100.0% 100.0% 95.0% 100.0% 95.0% 100.0% 100.0% Lower Liquidity Assets - Small Cap Preferred Stocks - CAT Bonds - Mortgages - Listed Derivatives Other (e.g. Bank Acceptances, etc) 1,402.70 644.50 1,554.00 265.00 113.60 1,655.20 618.70 1,399.00 226.00 119.30 1,709.82 626.12 1,468.95 242.95 124.67 1,906.45 643.03 1,552.68 228.37 131.65 1,858.79 495.13 1,133.46 184.98 121.12 92.5% 90.0% 90.0% 90.0% 90.0% 87.5% 85.0% 85.0% 80.0% 80,0% Low Liquidity Assets - Real Estate - Policy Loans - Direct / Private Equity - Policy collectibles due (non-arrears) 85.0% 85.0% 3,105.10 1,173.90 227.20 378.50 2,887.70 1,217.30 229.50 227.20 2,916.58 1,268.43 259.34 229.47 2,953.03 1,274.77 281.12 235.67 1,033.56 522.66 250.20 216.81 60.0% 70.0% 60.0% 70.0% - 75.0% 85.0% 37,904.00 39,985.40 42,819.42 44,475.24 41,746.37 Total - Simple average return on assets - Weighted average return on assets (based on EY2019 weights) Weighted average return on assets (based on FY2020 weights) Overall return on assets, FY 2020 Risk capital required, $ millions Risk capital held, $ millions Risk capital cushion (shortfall), $ millions QUESTIONS: 1) Calculate shares of book value for each asset class for each year and briefly discuss how these shares change over time. 2) Using risk weightings provided in the Column "G", compute risk capital required, risk capital held and risk capital cushions in each year. Briefly analyze the dynamics and trends in risk capital position of the Insurance Company. 3) Based on (2) above, discuss what are the key risk areas and risk factors that you can identify from this analysis when it comes to risk capital cushions available to the insurer. 4) Now, suppose regulatory authorities decided to tighten capital controls and raised risk weightings (lowered % allowances) on Low and Lower Liquidity instruments/assets as per Column "H". Repeat your analysis for (2) and (3) above. Compare your results to (2) and (3) above. Assignment 1: Due September 27, 2020: Insurance company assets balance sheet DATA: Company accounting year starts January 1 General Account January 1, 2017 January 1, 2018 January 1, 2019 January 1, 2020 January 1, 2021 (forecast) Book Value FY Book Value FY Book Value FY Book Value FY 2016, $ millions 2017, $ millions 2018, $ millions 2019, $ millions Forecast Market Value EY 2020, $ millions Scenario 1: Risk Weightings on Assets, % Scenario 2: Risk Weightings on Assets, % Liquid Assets - Listed Equities (stocks) - Government Bonds - Corporate Bonds (Aaa rated) - Cash & Currencies - Money markets funds 834.10 22,746.30 3,525.70 1,099.40 834.00 925.70 24,566.00 3,931.10 1,165.40 817.30 1,027.53 26,776.94 4,068.69 1,221.34 878.60 1,099.45 27,767.69 4,239.57 1,300.73 861.03 1,115.95 28,739.56 4,154.78 1,118.62 800.75 95.0% 100.0% 95.0% 100.0% 100.0% 95.0% 100.0% 95.0% 100.0% 100.0% Lower Liquidity Assets - Small Cap Preferred Stocks - CAT Bonds - Mortgages - Listed Derivatives Other (e.g. Bank Acceptances, etc) 1,402.70 644.50 1,554.00 265.00 113.60 1,655.20 618.70 1,399.00 226.00 119.30 1,709.82 626.12 1,468.95 242.95 124.67 1,906.45 643.03 1,552.68 228.37 131.65 1,858.79 495.13 1,133.46 184.98 121.12 92.5% 90.0% 90.0% 90.0% 90.0% 87.5% 85.0% 85.0% 80.0% 80,0% Low Liquidity Assets - Real Estate - Policy Loans - Direct / Private Equity - Policy collectibles due (non-arrears) 85.0% 85.0% 3,105.10 1,173.90 227.20 378.50 2,887.70 1,217.30 229.50 227.20 2,916.58 1,268.43 259.34 229.47 2,953.03 1,274.77 281.12 235.67 1,033.56 522.66 250.20 216.81 60.0% 70.0% 60.0% 70.0% - 75.0% 85.0% 37,904.00 39,985.40 42,819.42 44,475.24 41,746.37 Total - Simple average return on assets - Weighted average return on assets (based on EY2019 weights) Weighted average return on assets (based on FY2020 weights) Overall return on assets, FY 2020 Risk capital required, $ millions Risk capital held, $ millions Risk capital cushion (shortfall), $ millions QUESTIONS: 1) Calculate shares of book value for each asset class for each year and briefly discuss how these shares change over time. 2) Using risk weightings provided in the Column "G", compute risk capital required, risk capital held and risk capital cushions in each year. Briefly analyze the dynamics and trends in risk capital position of the Insurance Company. 3) Based on (2) above, discuss what are the key risk areas and risk factors that you can identify from this analysis when it comes to risk capital cushions available to the insurer. 4) Now, suppose regulatory authorities decided to tighten capital controls and raised risk weightings (lowered % allowances) on Low and Lower Liquidity instruments/assets as per Column "H". Repeat your analysis for (2) and (3) above. Compare your results to (2) and (3) above