|Industry experts, Scott D. Houghton, FSA, MAAA, Bill Cember, FSA, MAAA, and Katherine M. Papillon-Rodrigue, ASA, CERA, discuss the implementation challenges with US GAAP Long Duration Targeted Improvements (LDTI) for life and annuity products, as well as the methods and actuarial models their organizations use to overcome these obstacles.|
Some key points from the presentation are:
After watching the webcast, you will be better prepared to:
An excerpt from Scott D. Houghton's presentation on LDTI
Scott D. Houghton's Full Presentation
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Discount Rate Under ASU 2018-12
“The liability for future policy benefits shall be discounted using an upper-medium grade (low credit-risk) fixed-income instrument yield.
“An insurance entity shall consider reliable information in estimating the…yield that reflects the duration characteristics of the liability for future policy benefits”
“An insurance entity shall maximize the use of relevant observable inputs and minimize the use of unobservable inputs in determining the discount rate assumption.”
Discount Rate Under LDTI
Credit risk level and duration prescribed
- Consensus to use “A” rated bond yield.
- Use of liability duration removes differences in duration risk in company investment policies.
Other investment risks not prescribed
Some interpretation needed for liquidity risk, prepayment risk, convexity risk.
Observable and non-observable inputs
- Bond maturities limited and can be shorter than insurance liability durations
- Observed rates can vary based on risks
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