| Risk
Management Metrics
November 6, 2003
9:00 a.m. Central Time
Participants:
Fred Tavan (Leader), Mark Abbott, Ellen Hall, David Ingram, Dennis Lauzon,
Ted Steven
Update on Database
Fred has found someone to get the Access database started.
Discussion
on Asset MV Risk (AMVR)
There was a lot of discussion around the definition of AMVR.
The AAA definition seems to be inconsistent in that it refers both to
the difference between BV and MV and also to the risk of fluctuating
equity values. The group decided to complement the AAA definition in
order to provide some clarification that this subcategory does not include
A/L mismatch risk but only the risk associated with surplus book to
market differences. If projection techniques are used then the risk
exposure is the difference between the MV at time t and the BV at time
t-1.
Measures
that were discussed included:
Duration for
fixed income instruments
TVaR (or CTE) for equities
Volatility of the Market Price considering : i) historical; ii) projected;
iii) implied
changes to spreads. The type of spread will vary based on the application.
Examples
include: credit spreads, liquidity spreads, SWAP spreads, Vacancy
rates for commercial
mortgages.
Current Book to Market differences
Sensitivity analysis on EV using different future economic scenarios
and its impact on
the value of assets supporting required capital Vega for securities
including options
(this may have to be mapped to the market volatility risk subcategory)
The above measures
will be entered into the database and further descriptions will be provided
in the future.
There was discussion
around where the risk of guarantees on SF/VA products should go. It
was agreed that the group would decide once we analyze the insurance
risk subcategories. While these guarantees are affected by the MV of
assets supporting the liabilities, this may be more due to the insurance
product design and belong to insurance rather than MV risk.
Assignment
of RMM for Credit Risk Category
Business Credit
Risk will be done by David Ingram.
Invested Asset Credit Risk will be done by Dennis Lauzon.
Concentration Risk will be done by Ellen Hall.
Next Call
The next call will be on December 3rd at 10AM EST (9 central).
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