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  #11  
Old 12-22-2017, 08:37 PM
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Carol Marler
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If the cashflows coming off the liabilities are positive (i.e. future premiums > future claims & expenses) in all future years, then you're done. You're right, you don't need to bring in the assets backing the reserves. You don't need any assumptions for reinvestment, future returns, future yield curves, etc. The ALM testing is completed. Show that projection from the liability side to the auditors and take off the rest of the year.
If the business really can support itself without investment income, there must be some other sort of risk that needs to be considered. Do you know what risks there are to your business? Does management know? Even if the auditors have no clue, this is an important question that your company needs to understand.
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Old 12-28-2017, 08:28 AM
sKansKi sKansKi is offline
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Originally Posted by Ranger View Post
If the cashflows coming off the liabilities are positive (i.e. future premiums > future claims & expenses) in all future years, then you're done. You're right, you don't need to bring in the assets backing the reserves. You don't need any assumptions for reinvestment, future returns, future yield curves, etc. The ALM testing is completed. Show that projection from the liability side to the auditors and take off the rest of the year.
hm...I detect a bit of sarcasm...look, if I were as smart as you I wouldn't need to ask dumb questions. I already know I'm an idiot. I just need help.
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Old 12-28-2017, 12:16 PM
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If your block is always generating positive cashflow there's no liability to match with assets.

But, they said they need something.

Show them what the liability cashflow projection looks like.

Do a projection of the asset cashflows (they're bonds, so you can do this in a spreadsheet, presumably you know the coupon rate, so project that forward to the maturity date, then have the maturity payment, it would be better to incorporate defaults in some fashion, but for now you can probably ignore that).

Show them how the asset and liability cashflows compare.
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Old 12-28-2017, 06:53 PM
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hm...I detect a bit of sarcasm...look, if I were as smart as you I wouldn't need to ask dumb questions. I already know I'm an idiot. I just need help.
no sarcasm intended. Just a very straight forward answer. Back when I was doing Asset Adequacy Analysis, I would come across self-supporting blocks of term insurance. Since the cash flows weren't dependent on interest rate assumptions, there was no need to go through a full blown CFT. Just showing the liabilities was enough. We would run a projection where we would increase mortality, just to have some type of scenarios to put in the report.

It sounded like you're in a very similar situation, in which case you're in more need to educate your auditors rather than yourself.
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Old 12-28-2017, 11:40 PM
sKansKi sKansKi is offline
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Originally Posted by snikelfritz View Post
If your block is always generating positive cashflow there's no liability to match with assets.

But, they said they need something.

Show them what the liability cashflow projection looks like.

Do a projection of the asset cashflows (they're bonds, so you can do this in a spreadsheet, presumably you know the coupon rate, so project that forward to the maturity date, then have the maturity payment, it would be better to incorporate defaults in some fashion, but for now you can probably ignore that).

Show them how the asset and liability cashflows compare.
OK, thank you.

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Originally Posted by Ranger View Post
no sarcasm intended. Just a very straight forward answer. Back when I was doing Asset Adequacy Analysis, I would come across self-supporting blocks of term insurance. Since the cash flows weren't dependent on interest rate assumptions, there was no need to go through a full blown CFT. Just showing the liabilities was enough. We would run a projection where we would increase mortality, just to have some type of scenarios to put in the report.

It sounded like you're in a very similar situation, in which case you're in more need to educate your auditors rather than yourself.
I must've been in a bad mood...now that I read it again w/o my red-colored glasses, I see how you were just giving a straight-forward answer.
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