Economic Scenario Work Group Report - December 2008

Sep 4, 2026

Economic Scenario Work Group Report (ESWG) outlines the Stochastic Log Volatility (SLV) interest rate scenario generator and provides recommended calibration criteria. The work supports life risk-based capital and regulatory reserve calculations by enabling companies to use Academy-generated scenarios or calibrate their own internal generators to match the Academy scenarios. It summarizes the generator’s purpose, scope, scenario set structure, and testing emphasis on tail outcomes, including guidance on applying the SLV generator for regulatory purposes.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages20

Reading Time50 min

AccessFree to download

Summary

Purpose and requested deliverables

Scenario sets and calibration approach

Recommendations and regulatory use

Testing focus and comparative evaluation

Report from the American Academy of Actuaries’ Economic Scenario Work Group To The National Association of Insurance Commissioners’ Life Risk Based Capital Working Group and Life and Health Actuarial Task Force Grapevine, TX – December 2008 The American Academy of Actuaries’mission is to serve the public on behalf of the U.S. actuarial profession. The Academy assists public policymakers on all levels by providing leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets qualification, practice, and professionalism standards for actuaries in the United States. Economic Scenario Work Group Max J. Rudolph, F.S.A., C.E.R.A., C.F.A., M.A.A.A., Chair Faye Albert, F.S.A., M.A.A.A. Anthony Dardis, F.S.A., F.I.A., C.F.A., M.A.A.A. Mike Davlin, F. S.A., M.A.A.A. Luke Girard, F. S.A., F.C.I.A., C.F.A., M.A.A.A Dave Kester, F. S.A., M.A.A.A Jeff Little, F. S.A., M.A.A.A. Sai Man, F. S.A., C.F.A., M.A.A.A. Jon Mossman, F. S.A., F.C.I.A., E.A., C.F.A., F.R.M., M.A.A.A. Link Richardson, F. S.A., C.E.R.A., M.A.A.A. The ESWG also recognizes the invaluable contributions of the following: Anatoliy Belaygorod, Ph.D. Geoffrey Hancock, F.S.A., C.E.R.A., F.C.I.A. Bill Pauling, C.F.A. Mark Tenney, M.S. Craig Turnbull, F.I.A. And ESWG past chair, Larry Gorski F.S.A., M.A.A.A. Economic Scenario Work Group Report Summary The American Academy of Actuaries’ Economic Scenario Work Group (ESWG) was asked to develop an interest rate generator and calibration criteria so companies could use either Academy-generated scenarios or their own internal model that calibrates to the Academy scenarios for regulatory reserve and capital calculations. This report will summarize the Stochastic Log Volatility (SLV) interest rate scenario generator model developed by the ESWG and describe the recommended calibration criteria. This report builds from and replaces all earlier reports from the ESWG. All references to “Academy” work products within this report refer to the specific committees and work groups that developed these specific reports and generators. The ESWG received its direction from the Standards for Stochastic Methods Work Group (SSMWG) Report, September 2006. The charge to the ESWG was stated as: • The ESWG will provide a prescribed generator containing updated parameters. This report includes an interest rate generator, a set of 10,000 Treasury curve scenarios using September 30, 2008 as the starting date and a scenario picking tool. • The ESWG will generate calibration criteria so companies can use their own generator or a subset of the base 10,000 Academy scenarios. This report includes calibration criteria to allow use of company generated scenarios, along with a tool that helps evaluate the requirements of the calibration criteria. As recommended in the SSMWG’s report, the provided scenario sets will not use pre-selected criteria designed to stress test specific blocks of business. More specifically, the ESWG does not support specific subsets of scenarios as were utilized in C3 Phase I RBC capital calculations. These scenario sets were designed and tested to apply to specific blocks of annuity business and are not appropriate when testing a variety of products with different risk characteristics. The goal of the Academy is to develop an integrated debt-equity generator that can be used for all reserve and capital calculations. We have not yet accomplished this goal, but this report provides an interest rate generator and scenarios based on updated parameters, along with calibration criteria to specify generators acceptable for regulatory calculations. The ESWG, along with the Academy’s Life Capital Adequacy Subcommittee, recommends that the SLV generator replace other interest rate generators currently in use for all regulatory purposes. To the extent a company is exposed to other financial market risks, such as equity, credit and

FAQs

What is the main goal of the ESWG report?

To describe the SLV interest rate scenario generator model and recommend calibration criteria so companies can use Academy scenarios or calibrate their own generators to match them for regulatory reserve and capital calculations.

What scenarios and tools are included in the report?

The report includes an interest rate generator, a set of 10,000 Treasury curve scenarios starting from September 30, 2008, and a scenario picking tool.

Why does the ESWG emphasize tail results in its testing?

Because tail outcomes help identify relatively weakly capitalized companies and support calculation of policy reserves for regulatory purposes.

Sep 4, 2026

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