Cash Flow testing when you're insolvent.

[rhoucag]

Does anyone have an idea how to do cash flow testing / reserve adequacy when your book surplus is negative?

Do you start with a deficit or do you put in a phantom asset to shore up the balance? We're a life co currently uder State receivership. :oops:

[Don Quijote]

I would start with a deficit, since it should be an obvious conclusion that you will fail the test, but then your report can look at the evolution of surplus over the scenarios to see if you are closing the gap, holding the course, or worse.

You´ll no doubt have some issues with lapse rates as well!

(You might be able to include off balance sheet assets to cover the difference with disclosure, but I assume you´ve included that in your negative book value already.)

[rhoucag]

I guess the point of cash flow testing is to test the level of your reserves and the quality of the assets backing them. Since we have a huge deficiet it becomes just a test of reserve level. I'm glad to say we passed all 8 interest rate scenarios.

I've also thought of adding the following wording to our stress test section:
"We tested the situation of 10% increased mortality in applicable products. And WE'RE STILL INVOLVENT." :)