Description: Argues public plans should only hold bonds, on the basis of tax and finance arguments.

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: The SOA’s Committee on Finance Research recently made available the results of a research study that explores economic series and provides an Excel-based tool for generating future economic scenarios. From Risks and Rewards Newsletter, August 2005, Issue No. 47.

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: This article discusses actuarial appraisal value and explores the relationship between cost of capital, market fair value of assets and liabilities, and the option pricing method.

Description: There are two main techniques for evaluating the financial impact of interest rate movements on insurance companies: duration measures and computer simulations. In many ways these approaches provide complementary viewpoints.

Description: Are Your Scenarios on Target?From Risks and Rewards Newsletter, August 2005, Issue No. 47. Actuaries are faced with the dilemma of how to incorporate advances in insurance products and modeling technology into their work. Increasingly, this means looking at a large number of potential outcomes using stochastic simulations.

Description: This article explores the effectiveness of hedging delta and rho of equity options. This provides insight into the frequency and severity of losses due to not hedging volatility risk or other higher order risks. 10yr-equity put option strategies were chosen to represent the risk of hedging guaranteed benefits attached to variable annuities, while 1-yr put and call strategies were modeled to investigate the risk of hedging equity index interest credited to fixed indexed annuities. In both cases, the value of the option was compared to the value of delta/rho hedges in the tail of both actual historical and simulated scenarios for equity returns and volatilities. The historical path of interest rates and equities was generally used to highlight the hedge impact for different implied volatility assumptions in each example.

Description: Proposes alternatives for estimating the long term interest returns in Indexed Universal Life products. Defends expected return of 20%-45% on hedge budgets.

Description: Derives appropriate hedge ratios for CPPI strategies, taking into account discrete hedge times and market dislocations (gap risk).