Hi,
que 1
I have few questions on longevity swap.
a) How Collateral is calculated at beginning of the contract?
I understand that it is PV of floating payment minus PV of fixed.
Where,
Fixed payments reflects counterparty B best estimate plus the risk margins
But how PV of floating payments is estimated? Like on which assumptions ? Does it use counterparty A assumptions to mortality ?
b) Run off of Collateral.
If the fixed and floating payments gets released as expected then Collateral value will change in the assumed pattern throughout the policy term.
But in reality, future is uncertain. So how Collateral amount can be changed during the policy period (eg after few years) compared to assumed collateral value at each time period ?
We know that Collateral is calculated on the prospective basis, and fixed payments are set at outset. So only changes in future expected floating payments can impact the collateral value during middle of the term, right?
Lets assume the floating payments are based on some assumptions of counterparty A and those assumptions get revised in middle of annuity policy duration (in light of experience emerging) , then Collateral will be changed , right?
Que 2. What is the impact of deposit back on SII balance sheet?
I am confused specially after reading solution to Q1, April 2015, part 7
Last edited: Aug 19, 2023