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  #11  
Old 12-06-2013, 08:14 AM
Hikey Hikey is offline
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Default Duration

I don't agree with the comment and agreement of "key rate duration". That is a topic I haven't worked with in awhile but key rate duration refers to the sensitivity of an asset or liability's cash flows to a change in the particular point on the yield curve. For example, 10 year key rate duration is the change in a bond's price based on changes only in the 10 year rate.

Now I haven't read the interpretation letter referred to here so perhaps that clarifies it but this table to me is taking a listing of your assets and liabilities that have been calculated to be a certain duration and just comparing the PV of those cash flows of those assets or liabilities. The net of them will help NY see duration gaps where perhaps there is an excess of assets that are long or excess of long liabilities and short assets, etc.

From my previous work, this has nothing to do with key rate duration as I've understood it.
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Old 12-06-2013, 08:19 AM
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Default Duration

I don't agree with the comment and agreement of "key rate duration". That is a topic I haven't worked with in awhile but key rate duration refers to the sensitivity of an asset or liability's cash flows to a change in the particular point on the yield curve. For example, 10 year key rate duration is the change in a bond's price based on changes only in the 10 year rate.

Now I haven't read the interpretation letter referred to here so perhaps that clarifies it but this table to me is taking a listing of your assets and liabilities that have been calculated to be a certain duration and just comparing the PV of those cash flows of those assets or liabilities. The net of them will help NY see duration gaps where perhaps there is an excess of assets that are long or excess of long liabilities and short assets, etc.

From my previous work, this has nothing to do with key rate duration as I've understood it.
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  #13  
Old 12-06-2013, 09:44 AM
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Me, I just love NY special considerations meriting a frowny face.
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Old 12-06-2013, 11:46 AM
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Old 12-06-2013, 01:46 PM
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I know, but you could remove it, and choose not to
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Old 12-06-2013, 01:49 PM
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Well, yeah.
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  #17  
Old 12-06-2013, 03:43 PM
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Quote:
Originally Posted by Hikey View Post
I don't agree with the comment and agreement of "key rate duration". That is a topic I haven't worked with in awhile but key rate duration refers to the sensitivity of an asset or liability's cash flows to a change in the particular point on the yield curve. For example, 10 year key rate duration is the change in a bond's price based on changes only in the 10 year rate.

Now I haven't read the interpretation letter referred to here so perhaps that clarifies it but this table to me is taking a listing of your assets and liabilities that have been calculated to be a certain duration and just comparing the PV of those cash flows of those assets or liabilities. The net of them will help NY see duration gaps where perhaps there is an excess of assets that are long or excess of long liabilities and short assets, etc.

From my previous work, this has nothing to do with key rate duration as I've understood it.
Agreed. Key rate duration is a measure of yield curve twist risk; regular duration measures parallel shift risk.
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  #18  
Old 12-10-2013, 11:13 AM
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Quote:
Originally Posted by Hikey View Post
I don't agree with the comment and agreement of "key rate duration". That is a topic I haven't worked with in awhile but key rate duration refers to the sensitivity of an asset or liability's cash flows to a change in the particular point on the yield curve. For example, 10 year key rate duration is the change in a bond's price based on changes only in the 10 year rate.
You're right. The request doesn't get you key rate durations. I was thinking that the intent might be to get an understanding of the exposure to interest rate movements at different parts of the curve, similar to what key rate durations get you.

As far as grouping assets and liabilities by duration, I think it's pretty straight forward to get granular on the assets because they are typically identified, and durations calculated, at the individual investment level.

Liabilities durations are not typically calculated on a policy by policy level, so what level of granualarity do you use? At the extreme, the liabilities of the whole company could be in one bucket. If you have three lines you're testing, you could be at most in 3 buckets. Calculating durations by policy is a lot of additional work, not just once but for each of the shifts. i don't think this is what they have in mind either.

I think grouping cashflows by maturity and showing the discounted value gets at "duration" gap (sorta) and shouldn't be much additional work.
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  #19  
Old 12-10-2013, 01:26 PM
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There is an SOA webinar happening right now talking about the Special Considerations Letter. If the speaker comments on this, I'll post it.
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  #20  
Old 12-10-2013, 01:58 PM
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I'm intentionally leaving the speaker anonymous so nobody will rely on this as representative of what he said, but...

1) He treated the duration column as projection years, probably from your cash flow testing.
2) He noted that the discount rate for the cash flows was not defined.
3) Based on a conversation with NYS, he said this was meant to be aggregate for the company, not by line of business or other subclass.
4) There is a clearly a need to be explicit about the impact of derivatives.
5) This table has a May 1 submission date, and again based on a conversation with NYS, he said that they expected a 'good faith effort', document your approach, and expect that this table would be modified next year to be more clear.
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