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Lead to appropriate, but not excessive, asset requirements.
In Appendix 9, section A9.2 of the AG 43 report, it is recognized from the practical standpoint that it may not always be possible to determine the level of Margin in aggregate for all behavior assumptions. Therefore the Actuary may determine prudent best estimate or prudent assumption independently for each policyholder behavior.� Q9.17: Is it important that Margins be identified with particular policies or groups of business? Or is it just important that the balance sheet of the company as a whole reflect the appropriate degree of conservatism? A: Some actuaries would attribute Margins for capital specifically to groups of business as appropriate. The proposed Valuation Manual Section 31 discusses disclosure of Margins. For example, some actuaries would assess whether the calculation was appropriate by product as well as whether the Margins are adequate over a broad set of policies. This would be particularly useful for products with uncertain risks or particularly unique characteristics. It is expected that aggregate methods will be used by some actuaries, particularly where Policy characteristics are similar or have homogeneous risks. Q9.18: Should Conditional Tail Variance (CTV) be considered in addition to CTE? A: Some actuaries may calculate a CTV value or other measures like CTV but it is not required by C3 Phase 3 under the Report. Some actuaries may feel that such a measure may be useful in giving extra weight to very low frequency, very high severity events. Q9.19: How should Margins be set when the impact of assumption movements changes over the duration of the business? A. For some products, the impact of increasing or decreasing an assumption may vary according to the duration of the business. Since Margins are intended to add conservatism, one interpretation would require positive Margins for some durations, and negative Margins for others. However, some actuaries would not introduce arbitrary duration breakpoints when setting Margins. Where there is a clear change in the Policy, such as a dramatic change in premiums or surrender charges, some actuaries will develop assumptions and Margins that differ before and after this point. Q9.20: How are Margins set on dynamic assumptions? A: Where an assumption is interest rate or equity return dependent, and a dynamic formula is included in the modeling, some actuaries may not add an additional Margin to the calculation, on the basis that conservatism is provided by the conservatism inherent in the tail measure (i.e., CTE). However, some other actuaries may add additional conservatism, as they might feel that the use of the tail measure will only inject conservatism regarding the interest rate or equity risk, but not necessarily the dynamically related risk, which they may see as a distinct risk. Some of these actuaries might add conservatism by making the dynamic formula slightly more or less dynamic (depending on what would be more conservative) than anticipated.
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