M
Mbotha
Member
I have some questions on section 3.3 (The Process):
- Just to check, are we modelling both assets and liabilities (separately) using stochastic models? And, if so:
- In the liability projection model, our stochastic variables may be investment returns (to calculate bonuses in the case of WP products; to calculate the cost of any guarantees), mortality improvements (in the case of annuities) and possibly lapses (?). Is that right? What else am I missing?
- In the asset projection model, our stochastic variables would be the returns on the assets (risk free rates, equity returns etc)?
- The results of the asset projection model would then be fed into the liability projection model
- If the products modelled aren't investment related (i.e. not UL or WP), how would the asset model results be used in the liability model?
- In terms of the ESG, am I right that in saying that this model broadly provides a range of economic scenarios that will then serve as the distributions of the stochastic variables in the asset and liability projection models above?
- Also, page 8 specifically says: "This model produces....future economic outcomes, which are then used as an input to the stochastic projection model." What's confusing me here is the singular form of "stochastic projection model". Aren't we using the output of the ESG as inout in both A and L models?