6 rbc interpretation by tommy

Tommy Pichet, Pichet, FSA, FIA, FSAT

The Way To Interpret Thai RBC guideline What can we do to improve the Solvency ratio?

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

First glance at RBC

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Capital Adequacy Ratio = Available Capital .

Required Capital The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Available Capital • Fair Asset

– Fair Liability • What is Fair Asset?

• What is Fair Liability?

• Tier 1 + Tier 2 = Capital The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Fair Asset • Market

value with adjustment • Sensitive to interest rate • Exclude goodwill • Exclude DTA The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Fair Liability • Long •

Contract

GPV @75%

• Short

contract

Claim Liability • Premium Liability •

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Required Capital on Asset •

Credit risk charge (debt obligation, reinsurance, other assets)

•

Market risk charge (equity risk, property risk, commodity price risk, collective investment schemes/unit trust, currency risk, interest rate risk, “liquidity risk”)

•

Concentration risk charge

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Required Capital on Liability • •

Liability risk charge Market risk charge

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Capital Adequacy Ratio = Fair Asset – Fair Liability

Risk Charge The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

RBC requirement – Where are we?

Effective date – September 1, 2011 • Current status •

• • •

•

No official announcement Minimum RBC ratio required by OIC (before intervention) is 125% in 2012, moving up to 150% by 2016 Should have no further change from the latest draft requirements

Comparison of existing and new requirement • •

Existing requirement – 2% of local statutory reserve New requirement – Market risk (i.e. equity risk, property risk, and interest rate risk), credit risk, concentration risk, and liability risk shocking from 75 percentile to 95 percentile for required capital determination

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Summary of RBC Thailand

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT Bond

Asset

(76% of the Total Asset)

Stock (15% of the Total Asset)

Total Capital Available (Assets - Liabilities)

Liabilities

Policy Reserve - GPV@75%

Solvency Ratio (Total Capital Available/Capital Required) Capital Required

GPV reserve Liability RC Cash Surrender Value Interest Risk Charge Equity Risk Charge

Thai RBC

Market RC

Property Risk Charge Other Risk Charge Diversification Effect

Implemented on 1Sep11 Credit RC

Assets Concentration RC Reinsurance

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT Bond

Asset

(76% of the Total Asset)

Stock (15% of the Total Asset)

Total Capital Available (Assets - Liabilities)

Liabilities

Policy Reserve - GPV@75%

Solvency Ratio (Total Capital Available/Capital Required) Capital Required

GPV reserve Liability RC Cash Surrender Value Interest Risk Charge Equity Risk Charge

Thai RBC

Market RC

Property Risk Charge Other Risk Charge Diversification Effect

Implemented on 1Sep11 Credit RC

Assets Concentration RC Reinsurance

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Fair Value Liability - Long Discount Rate - Current Risk Free rate (Prescribed by OIC) • Operating Assumptions (Lapse, Mortality, Morbidity, •

loss ratio, expense, fund growth rate, future dividend rate)

Normal growth (unwounded GPV) • New business •

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Policy Reserve (GPV@75%) Model enhancement (if any) • Prescribed PAD on the assumption by OIC to calculate the GPV@75% • Product Grouping • To determine the PAD • To determine flooring •

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT Bond

Asset

(76% of the Total Asset)

Stock (15% of the Total Asset)

Total Capital Available (Assets - Liabilities)

Liabilities

Policy Reserve - GPV@75%

Solvency Ratio (Total Capital Available/Capital Required) Capital Required

GPV reserve Liability RC Cash Surrender Value Interest Risk Charge Equity Risk Charge

Thai RBC

Market RC

Property Risk Charge Other Risk Charge Diversification Effect

Implemented on 1Sep11 Credit RC

Assets Concentration RC Reinsurance

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Liability Risk Charge The difference between the GPV@75% and GPV@95% • Prescribed PAD by OIC to calculate the GPV@75% and GPV@95% • Treatment of the negative GPV • New rule of Cash Surrender Value •

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT Bond

Asset

(76% of the Total Asset)

Stock (15% of the Total Asset)

Total Capital Available (Assets - Liabilities)

Liabilities

Policy Reserve - GPV@75%

Solvency Ratio (Total Capital Available/Capital Required) Capital Required

GPV reserve Liability RC Cash Surrender Value Interest Risk Charge Equity Risk Charge

Thai RBC

Market RC

Property Risk Charge Other Risk Charge Diversification Effect

Implemented on 1Sep11 Credit RC

Assets Concentration RC Reinsurance

The Way To Interpret Thai RBC guideline - What can we do ?

18

Tommy Pichet, Pichet, FSA, FIA, FSAT Bond

Asset

(76% of the Total Asset)

Stock (15% of the Total Asset)

Total Capital Available (Assets - Liabilities)

Liabilities

Policy Reserve - GPV@75%

Solvency Ratio (Total Capital Available/Capital Required) Capital Required

GPV reserve Liability RC Cash Surrender Value Interest Risk Charge Equity Risk Charge

Thai RBC

Market RC

Property Risk Charge Other Risk Charge Diversification Effect

Implemented on 1Sep11 Credit RC

Assets Concentration RC Reinsurance

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Interest rate Risk Charge Asset side • Cash flow from bonds (excl property) • Liability side • Only guarantee CF from LT liability • Product grouping to floor its fair value • Adjusted Liability duration (prescribed) •

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT Bond

Asset

(76% of the Total Asset)

Stock (15% of the Total Asset)

Total Capital Available (Assets - Liabilities)

Liabilities

Policy Reserve - GPV@75%

Solvency Ratio (Total Capital Available/Capital Required) Capital Required

GPV reserve Liability RC Cash Surrender Value Interest Risk Charge Equity Risk Charge

Thai RBC

Market RC

Property Risk Charge Other Risk Charge Diversification Effect

Implemented on 1Sep11 Credit RC

Assets Concentration RC Reinsurance

The Way To Interpret Thai RBC guideline - What can we do ?

21

Tommy Pichet, Pichet, FSA, FIA, FSAT Bond

Asset

(76% of the Total Asset)

Stock (15% of the Total Asset)

Total Capital Available (Assets - Liabilities)

Liabilities

Policy Reserve - GPV@75%

Solvency Ratio (Total Capital Available/Capital Required) Capital Required

GPV reserve Liability RC Cash Surrender Value Interest Risk Charge Equity Risk Charge

Thai RBC

Market RC

Property Risk Charge Other Risk Charge Diversification Effect

Implemented on 1Sep11 Credit RC

Assets Concentration RC Reinsurance

The Way To Interpret Thai RBC guideline - What can we do ?

22

Tommy Pichet, Pichet, FSA, FIA, FSAT Bond

Asset

(76% of the Total Asset)

Stock (15% of the Total Asset)

Total Capital Available (Assets - Liabilities)

Liabilities

Policy Reserve - GPV@75%

Solvency Ratio (Total Capital Available/Capital Required) Capital Required

GPV reserve Liability RC Cash Surrender Value Interest Risk Charge Equity Risk Charge

Thai RBC

Market RC

Property Risk Charge Other Risk Charge Diversification Effect

Implemented on 1Sep11 Credit RC

Assets Concentration RC Reinsurance

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Things to be done • • • • •

Methodology Assumption Process and control Model Results

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Methodology • • • • • •

Short and Long contract classification Granularity of flooring Non guarantee CF on bonus declaration 6% discount spread prescribed Positive / negative spread business Reinsurance

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Methodology • • • • •

Deferred Tax Asset / Deferred Tax Liability Discount rate for fund deposit earned rate Treatment of the Fund Value of fund deposit as at valuation date ETI and RPU treatment Structure Notes Non-guaranteed reserve

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Impact from RBC

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Impact on investment strategy • Will

equity allocation help to manage your business?

• Property investment, good or bad?

• Corporate vs Government bond?

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Impact on product strategy RBC projection?

• Cost of capital? VoNB / EV? • Repricing? Which one?

• Communication? To whom?

•

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Impact on solvency strategy Sensitivity and stress test?

• Capital Planning?

• Inject or Remit?

• New target surplus?

•

The Way To Interpret Thai RBC guideline - What can we do ?

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Tommy Pichet, Pichet, FSA, FIA, FSAT

Tommy Pichet

FSA, FIA, FSAT, FRM, MBA, MScFE (Distinction), B.Eng (Hons)

Tommy Pichet qualified as a Fellow of the Society of Actuaries (USA) in 2005, a Fellow of the Society of Actuaries of Thailand in 2006, and a Fellow of the Institute of Actuaries (UK) in 2008. He further obtained his Master degree of Science in Financial Engineering (MScFE) in 2007 and Master of Business Administration (MBA) in 2009 on a part time studying program in Hong Kong.

He is also certified Financial Risk Manager (FRM速) Holders.

Mr. Pichet has gained extensive years of experience in both local and regional office with various actuarial skill sets in product development, financial reporting bases, and capital management. He has also profound practical experience and specialization in both Life and Accident & Health business. Currently, he is assigned to work as a head of corporate actuarial in AIA Thailand.

Mr. Pichet has been active with the actuarial profession for a number of years, and he has also been a SOA Ambassador (USA). He is frequently invited as a guest speaker of City University of Hong Kong, Sasin Graduate Institute of Business Administration, Chulalongkorn University, Thammasat University, NIDA, and other leading organizations to the MBA students, finance students, public, and inhouse training in the topics of risk management, financial management, and actuarial science.

The Way To Interpret Thai RBC guideline - What can we do ?

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