Description: The author notes that “current market value is highly relevant, but its accuracy is limited. Historical accounting, on the other hand, is highly accurate, but is of little relevance.” The article then goes on to discuss two leading methods for performing fair valuation of liabilities: the actuarial appraisal method and the option pricing method, and how they can be reconciled.

Description: This article uses the example of a bullet or general account GIC to determine the fair value of liabilities.

Description: This article discusses the pricing of life insurance contracts in the risk-neutral world. Specifically it deals with three aspects: 1 the motivation for pricing contracts using a risk-neutral methodology in valuing life insurance contracts 2 development of some ‘intuition’ behind the risk-neutral valuation techniques and 3 some caveats which need to be recognized.

Description: As stochastic modeling has evolved, it has divided down two paths—real-world and risk-neutral. This article discusses this division and shows how these paths may be re-united through the use of deflators.

Description: This article shows a different form of the Black-Scholes formula for European calls and puts under risk-neutral assumptions, that permits a comfortable verbal interpretation. The derivation of this alternative form appears at the end of the article.

Description: A discussion of methods used to determine the liability of segregated fund or separate account investment guarantees.

Description: The article focuses on the need to develop a strategy for investing surplus resulting from the buildup of significant excess capital. The author discusses three principles on which a company can base its surplus investment strategy, including the risk/return preference of the client, attribution of surplus to the products and an investment strategy based on all company risks.

Description: “It’s interesting to note that, given the past year’s reversal of fortunes in the stock markets, all the media rap about heated inquiries around back-dating options has stopped.”

Description: Chairperson’s column discussing the state of the world today and how that influences investment strategies and describes to seminars the section sponsored to keep members apprised of changes.

Description: The author uses a generalized asset risk model to explore C1 risk, drawing heavily from investment theory and pension fund management, applying these to an insurance general account. This article has two parts the first part, contained in this issue of Risk and Reward, describes the basic C1 model itself. The second part, which will be published in the next issue of Risks and Rewards, discusses various implications of the basic C1 model, especially related to managing the company’s investment portfolio.