Illiquid assets present significant challenges when there is not an active market upon which prices can be based. A class of assets with intrinsic long-term value may be difficult to sell for lack of willing buyers during severe market dislocations, and an owner of such an asset might be compelled to record a significantly reduced balance sheet value under "mark-to-market" guidelines, even if there is no desire (or need) on the part of the owner to sell that asset in the current market. Recognizing this problem, FASB recently moved to allow banks (and auditors) to use "significant judgment" in valuing illiquid assets such as mortgage securities.

Determining whether a market is suffering from a near term dislocation, and whether or not an asset is wholly or partially impaired as a result, are questions outside the scope of this request for proposals. However, where the determination is made that market-based pricing is not desirable, the question becomes what alternative approaches should be used, and what standards should guide their application? On a related note, does a more market-neutral approach to determining expected asset value better support the measurement and management of associated liquidity risk (i.e., where risk is a function of the difference between actual and expected pricing under various conditions)?

Actuarial models have been successfully applied to the problems of valuing complex and illiquid liabilities, and determining associated risk metrics. The CIA, CAS, and SOA's Joint Risk Management Research Team and the SOA's Committee on Finance Research are seeking researchers to address the following questions:

• Can these models be applied (or adapted) to value illiquid assets and associated risk measures as well? How might the application vary based on different asset classes?
• If so, can a case study be devised to demonstrate how this might work for a defined category of illiquid assets?
• What professional standards might guide the application of these methods and the interpretation of results?
• Are current actuarial or other professional standards sufficient, or would additional guidance be needed?

Any case studies developed should be available for access in Excel or other commonly used software such as R. Respondents should also specify the types of asset classes they intend to address.

The results of this effort should be beneficial to financial professionals who need to address the challenges of valuing illiquid assets. 

To facilitate the evaluation of proposals, the following information should be submitted:

1. Resumes of the authors, including any graduate student(s) expected to participate, indicating how their background, education, and experience bear on their qualifications to undertake the research. If more than one author is involved for each report, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the authors as well as for the firm or institution on whose behalf the proposal is submitted.
2. An outline of the approach to be used. Details should be given regarding the manner in which appropriate published material will be identified and evaluated, search techniques to be used, collateral material to be consulted, and possible limitations of the review and analysis. Suggestions for survey revisions or expansions should be included.
3. Cost estimates for the research, including computer time, salaries, report preparation, research costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
4. A schedule for completion of the research, identifying key dates or time frames for research completion and report submission.
5. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

The CIA, CAS, and SOA's Joint Risk Management Research Team and the SOA's Committee on Finance Research are responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals may also be sought, but the CIA, CAS, and SOA's Joint Risk Management Research Team and Committee on Finance Research will make the final decision. The SOA's Research Actuary will provide staff actuarial support. A Project Oversight Group (POG) will be appointed to oversee the project upon selection of the proposal.

FUNDING
The vendor will be selected based on a comparison of costs and services included. Funding will be provided by the SOA through revenues generated from the SOA's annual assessment for experience studies, which are used to benefit the actuarial profession, insuring organizations, consulting firms and the public in general.

Any questions regarding this RFP should be directed by fax, or e–mail to: Steven Siegel, SOA Research Actuary (ph: 847.706.3578, f: 847.273.8578).

If you intend to submit a proposal, please e–mail written notification by July 15th, 2010 to: Barbara Scott, Society of Actuaries, 475 N. Martingale Road, Suite 600, Schaumburg, IL 60173-2226 or (ph: 847.706.3592, f: 847.273.3592).  

Please e–mail a copy of the proposal to: Barbara Scott.

Proposals must be received no later than July 30th, 2010. It is anticipated that all proposers will be informed of the status of their proposal by August 30th, 2010. 

Note: Proposals are considered confidential and proprietary.

The Joint Risk Management Section and Committee on Finance Research reserve the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available. The Joint Risk Management Section and Committee on Finance Research also reserve the right to redirect the project as is deemed advisable.

The Joint Risk Management Section and Committee on Finance Research intend to copyright and publish the results of this research. The research will be considered work–for–hire and all rights thereto belong to the Joint Risk Management Section and Committee on Finance Research. However, appropriate credit will be given to the researcher(s).