C3 Phase II (C3P2), effective for year-end 2005, is a method of principle-based projection to determine capital requirements for Variable Annuities (VA’s). Under C3P2, companies are required to determine the worst-case present value of after-tax accumulated surplus under many scenarios. A Conditional Tail Expectation (CTE) calculation is then performed on the scenario results to calculate the Total Asset Requirement (TAR). Additionally, a Standard Scenario using prescribed assumptions is calculated to set the minimum TAR.

Since October of 2005, AXIS has supported C3P2 capital calculations at the valuation date. In addition to explicitly modeling the various death benefit and living benefits offered with VA’s, and their associated charges and fees, AXIS offers a number of advanced capabilities specific to C3P2 work:

1. You can use the StochasticTools module to generate economic scenarios either based on one of the widely used scenario generators already programmed in AXIS, or by using a flexible user-defined option to implement your own model.
2. You can use the Stochastic Processing module to calculate the specific stochastic calculation results necessary for C3P2 requirements, using generated or imported scenarios. Worst case present values are captured for every scenario being considered and the required CTE metric is calculated.
3. The results for the Standard Scenario can also be calculated to provide a floor on the capital requirement. Values for the tax adjustment calculation are also generated.

We have optimized AXIS calculations to provide the C3P2 numbers as quickly as possible, since run-time is a huge issue when dealing with stochastic runs. And if you have more computers to help in the runs, our Distributed Processing / GridLink module has proved to be extremely efficient in reducing run times even further. In addition to the fast run times, the Stochastic Processing module provides excellent reporting tools including our 3-Dimensional Calendar Year Results cube to quickly analyze scenario results.

For users not wanting to use the StochasticTools module to generate their own scenarios, we have converted the 10,000 illustrative scenarios provided by the American Academy of Actuaries into AXIS format and this can be downloaded from the GGY website. These will be updated with each release of new illustrative scenarios for the convenience of our users.

With the implementation of AG 43 as of December 2009, a similar calculation is now required for the calculation of statutory method reserves for VA’s. However AG 43 is calculated pre-tax and has several other differences from C3P2 calculations including a different approach to the Standard Scenario calculation. AXIS supports both calculations enabling one model and one software solution for both requirements.

Finally, GGY AXIS recently released a new module called the Hedge Projection module. This addition made to AXIS will help you model the effect of potential or actual hedging programs. This way, you can quantify their impact and evaluate their potential benefits and effectiveness under various economic conditions.

For further information on C3 Phase II support please contact GGY directly.