From its creation, a fundamental use of AXIS was to produce realistic financial projections with monthly details. Over the years seriatim inforce models were incorporated in AXIS, and more and more valuation methods and financial reporting frameworks were added, with the goals of continuing to support both current date valuation and realistic financial projections on a consistent basis.

Today, AXIS can support policy based reserve calculations on 6 different and independent reserve methods and 3 different required capital approaches simultaneously and use them in financial projections based on three different presentation frameworks (e.g. GAAP, Statutory, International).

With the introduction of stochastic approaches to capital (C3 Phase II in 2005) and reserves (AG 43 in 2009), AXIS has addressed this challenge with new Embedded Scenario Processing features. AXIS now supports financial projections for VA’s with fully stochastic approaches to the calculation of both AG 43 reserves and C3 Phase II capital at selected future dates.

At selected future pivot points within the projection period, independent calculations of both reserves and capital are simultaneously performed based on the projected inforce business at those dates, using consistent stochastic scenario sets. The scenarios chosen for the multiple branch paths at pivot points can either be pregenerated scenario sets selected by the user, or stochastically generated on the fly based on the economic rates at the pivot point. Reserves and capital for reporting dates between pivots can be realistically interpolated using deterministic calculations as a base.

At each pivot point, a cube of results is created internally for that pivot point and stored for viewing. While these stored results are required for the financial projections, the cubes can be examined after the run, including the detailed results for any selected tail scenario.

If the overall projection process described above is iterated using a set of outer loop scenarios, you have the capability of performing stochastic on stochastic processing.

Even more impressive is that now both the initial valuation and the full financial projection can reflect the impact of a dynamic hedge strategy in actual cash flows and within the calculations of both AG 43 reserves and C3 Phase II capital.

While full triple stochastic processing is thus possible, the enormous numbers of scenario loops will lead most users to restrict the outer loops to selected scenarios, and to reduce the numbers of embedded pivot points. This may not be a serious restriction for limited model point runs such as may be appropriate for a pricing exercise or for evaluating the effectiveness of potential hedging strategies. With AXIS you at least have the choice.

For further information on Financial Projections for VA's and Projected Nested Stochastics, please contact GGY directly.