Few individuals and organizations in North America have been spared the effects of the recent financial crisis. Moreover, in the view of a number of prominent commentators, the worst fallout from the crisis may have yet to be seen. In particular, many point to the risk that North American economies may be sent on a spiralling descent from the aftershocks of a period of severe inflation or deflation. Essentially, severe inflation is inflation that can become out of control as prices increase rapidly and currency loses its value. Typically, when severe inflation occurs, a vicious circle ensues in which greater and greater inflation is generated. In such situations, an unchecked increase in the money supply is also seen. Periods of severe inflation are often present during times of war, and political or economic upheavals.

Like severe inflation, deflation is usually associated with times of war and recessions. In general terms, deflation refers to a condition where there is a decrease in the overall price level of goods and services. In other words, deflation occurs when the annual inflation rate falls below zero percent and allows consumers to buy more goods with less money. The definition of deflation includes declining financial asset values. Deflation may wreak havoc on an economy when a deflationary spiral persists. The causes of a deflationary spiral are lower prices generating lower wages and demand, resulting in a continuing cycle of even lower prices and lower wages.

It is clear that a scenario of either severe inflation or deflation would not bode well for financial security systems across North America. With this in mind, the North American Actuarial Council's (NAAC) Collaborative Research Group is interested in an exploration of the risks related to scenarios of severe inflation or deflation across financial security systems and industries in North America, as well as the specific impact to a particular country's systems.

The NAAC Collaborative Research Group is seeking researchers to examine the risks of severe inflation or deflation on financial security systems across North America. In order to obtain a range of views, the Research Group intends to select at least two sets of research teams to explore this issue. The first objective for a research team will be to assign probabilities for different scenarios of severe inflation and deflation. In assigning probabilities, it is expected that a research team would use stochastic or other similar techniques. A description of the intended probability assignment methodology should be clearly stated within submitted proposals. Upon determining the likelihood of each scenario, one or more of the following questions on the impact of severe inflation or deflation would then be addressed:

• What would be the general implications for financial security systems across North America?
• What would be the implications on the insurance industry? How would these scenarios impact particular lines of business? What would be the effect on insurance company assets and liabilities including reserves (potentially driven by the impact of changes in interest rates)?
• How would retirement security systems be affected and in turn, current retirees and baby boomers? What would be the impact on other social insurance systems?
• What would be the specific impact to financial security systems in the U.S., Canada, and Mexico?
• What risk management approaches may be taken to mitigate the impact of either scenario on financial security systems?
• What broad policy considerations may need to be considered in mitigating either scenario?
• What lessons may be learned from economies outside of North America that have encountered similar scenarios such as Japan and Argentina?

Proposals should state which questions will be addressed by the research team. All research teams are expected to complete the first objective of this request for proposals.

Given the broad scope of this effort, the organizers of this request for proposals are interested in thoughts about follow-up work. Respondents are encouraged to outline such thoughts in their submissions.

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 NAAC Collaborative Research Group is responsible for the selection of the proposal to be funded. Input from other knowledgeable individuals may also be sought, but the NAAC Collaborative Research Group 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.

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 NAAC Collaborative Research Group reserves 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 NAAC Collaborative Research Group also reserves the right to redirect the project as is deemed advisable.

The NAAC Collaborative Research Group intends to copyright and publish the results of this research. The research will be considered work-for-hire and all rights thereto belong to the NAAC Collaborative Research Group. However, appropriate credit will be given to the researcher(s).