View Full Version : Estimating Asset Duration from Schedule D
07-31-2006, 02:55 PM
Can I estimate a company's asset duration (sensitivity to interest rate changes) from the Annual Statement Schedule D and DA? Assume the portfolio is all bonds or cash equivalents (i.e. no equity or fancy derivatives to deal with).
I am guessing the answer is no. I can get an approximate distribution of distribution the time to maturity, but I don't think I can determine if the bonds are fixed or floating rate coupons which would obviously impact the duration calculation. Am I right? Or does the "How Paid" column in Schedule D - Part 1 give me a hint?
You might also need to consider whether the bonds are callable, and if so, when.
07-31-2006, 03:19 PM
A good point as well.
MBS/ABS are also in Sched. D. Your investment departement probably (or at least should) track asset duration. Ask them.
08-01-2006, 08:28 AM
I'm actually reviewing a third party company (not my own). I'll eventually get the info but was hoping to get a rough estimate first.
Basically, the company has adequate surplus, but almost all of their investments are in bonds with maturities of approximately 20 years. The business that these assets support is fairly short-tailed. I'm worried that an increase in interest rates might have a material impact on surplus by reducing the market value of their assets.
08-01-2006, 09:12 AM
I'm worried that an increase in interest rates might have a material impact on surplus by reducing the market value of their assets.
Another practical problem - if interest rates go up they'll be stuck with using their new premiums to pay claims and expenses since it's unlikely that they're going to want to realize a capital loss on their existing portfolio. End result is that they won't be able to take advantage of that increase in rates.
And the call provisions won't take effect, either, in the up market. Seems to me that you do have a rough idea of the issues, and just need the supporting detail to refine the answer to "how bad?"
vBulletin® v3.7.6, Copyright ©2000-2013, Jelsoft Enterprises Ltd.