Disinvestment will initially be on a pro-rata basis across all assets, with other methods potentially used as determined. B. Defaults Defaults will occur at the end of each month. The default rate is .20% of book value as an annual decrement and should be modified to a monthly rate in the same manner that liability decrements are being converted. C. Investment Expenses Investment expenses are assumed to be .10% of book value annually, and are assumed to occur monthly.
A2.4
Assumptions for SPIA Model
This section summarizes the initial assumptions being used for modeling. A more detailed and complete set of assumptions is under development by the Analysis subgroup of the ARWG. A. Scenarios Tested For initial testing we are using a level interest rate scenario. We are also testing with a number of stochastic scenarios obtained from the enhanced C3 Phase 1 generator. B. Projection Period All models are projecting the results monthly. The results will be projected 20 years into the future from the valuation date. C. Taxes US Federal Income Taxes are not included in the projection. This is consistent with the other principles-based reserve approaches being developed with reserves calculated on a pretax basis. D. Expenses E. Mortality The mortality assumption we are using is 100% of the Annuity 2000 Mortality Table (basic). We are not yet reflecting actual and assumed mortality improvement in initial results, but reflection of mortality improvement must be considered in the establishment of reserves. F. Working Reserves The working reserve for the cells being tested follow two alternative definitions of working reserves for payout annuities. Option 1: 0 working reserves Option 2: Present Value of future benefits at a-2000 and the 2005 CARVM Issue Year Valuation interest rate for payout annuities
Appendix 2 – ARWG Analysis Subgroup Modeling Assumptions and Preliminary SPDA Results
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