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Barrie & Hibbert Limited's Blog

There is nothing normal about LTGA volatility

February 11, 2013 Comments (0)

Sandy Sharpe, David Roseburgh, Paul MacCarney Following on from our first blog which discussed the yield curve methodologies applied in the LTGA, here we highlight a few of our thoughts on the volatility data that been issued by EIOPA which can be used by participants for interest rate calibrations. The LTG assessment provides participants with example interest rate volatility surfaces which can be used along with the provided yield curves to recalibrate the stochastic nominal interest rate...

Long-Term Guarantee Impact Assessment

January 29, 2013 Comments (0)

On 28 January 2012 EIOPA published the discount curves it wants companies to use for the Long-Term Guarantee Assessment (LTGA) exercise.  The LTGA is expected to run for 2 months, starting from 28 January 2012, with EIOPA supplying the European Commission with its findings by 14 Jun and the Commission committing to publish a report by 12 July 2012. The LTGA is intended to assess the impact of the proposed Long-Term Guarantee measures and provide quantitative input to help clear the current...

Solvency II on pensions – a necessary evil?

July 3, 2012 Comments (0)

In February 2012, the European Insurance and Occupational Pensions Authority (EIOPA) published its final response to the European Commission’s Call for Advice on the review of the IORP Directive 2003//41/EC, now commonly known as ‘Solvency II on pensions’. Much of the subsequent debate revolves around a possible increase in pensions funding and compliance costs - for defined benefit pension schemes in particular. In the UK, various anti-SII lobbying groups argue that the UK...

Alternative views on extrapolated yield curves: a fundamental question remains unanswered

July 3, 2012 Comments (0)

The valuation of ultra long-term cash flows is surely one of the most basic challenges faced by accountants and actuaries. Yet the resulting debate grinds on about how to extrapolate observable yield curves. At its heart is an absolutely fundamental choice. On the one hand, extrapolated prices could represent where we might truly expect to trade a promised cash flow. These prices will be uncomfortably volatile and will imply relatively high levels of solvency capital for insurance firms....

Jumbo jets and fighter planes: exploring the Point-In-Time approach

July 3, 2012 Comments (0)

In previous articles, we have discussed the relative merits of the Point-in-Time (PIT) and the Through-the-Cycle (TTC) views of risk and capital; in a new research report, we analyse these approaches from the perspective of policyholder protection. This entry summarises the main findings, namely that PIT capital regimes can in principle simultaneously provide a higher degree of policyholder protection and a lower long-run average capital requirements than the TTC approach, although there are...

Solvency II for pensions - an unwelcome intrusion, or an inspiration?

July 3, 2012 Comments (0)

The 2010 EU Green paper on the future of pensions sparked many debates in the industry about the pros and cons of applying Solvency II to pensions.  Following this publication, the European Commission asked EIOPA for advice on an EU-wide legislative framework for IORPs (Institutions for Occupational Retirement Provisions) in April 2011. EIOPA has since published a second consultation on ‘draft responses to Call for Advice’ currently expected to close on 2 January 2012. Many...

A signal from the Fed?

July 3, 2012 Comments (0)

In the midst of global financial market turmoil and following the downgrade of its government’s credit rating in the previous week, the US Federal Reserve Bank announced on August 9th that it anticipated that the dismal state of the domestic economy and developed world growth prospects would “warrant exceptionally low levels for the federal funds rate at least through mid 2013”. What does this mean for projection of US interest rates? In particular, is there a case for...

Barrie & Hibbert in the press: ifaonline, Risk.net, and the Actuary

July 3, 2012 Comments (0)

How to use Barrie & Hibbert's retirement tool ifaonline.co.uk "John Higgins and David Campbell believe the at- retirement space is currently underserved by financial planning tools. Advisers are provided with plenty of options for which tools to use in the accumulation of their pension funds but have little to help decide the most effective approach to managing the transition to retirement and how to optimise their income in retirement." Comment: Practical...

Yield Curve Extrapolation: Longest reliable point

July 3, 2012 Comments (0)

It is profoundly worrying that the most basic valuation question we might ask of an insurer -- what is the value today of a fixed liability cash flow at some future date?-- is still unanswered less than two years ahead of Solvency II implementation. Policymakers, regulators, firms, actuaries and accountants have belatedly focussed on a number of difficult questions including the choice of risk-free asset, the method for extending valuation beyond traded maturities and the possible impact of...

The path really matters - Part III: A de-accumulation example

July 3, 2012 Comments (0)

Previous entries have highlighted the sensitivity of savings accumulation to the path or order of a set of investment returns.  We concluded that – for accumulation – savers benefit from avoiding poor returns late in the accumulation period and that these returns will do less damage early in a savings plan because the invested fund is small. The analysis presented below demonstrates that the reverse is true for de-accumulation. In the example we analyse the same set of returns...