Actuarial Guideline 43 is the new US statutory reserve requirement for Variable Annuity products and their associated guaranteed benefits (e.g. GMDBs, GMIBs, GMWBs, GLWBs and GMABs). This guideline became effective December 31, 2009, and replaced the existing Actuarial Guidelines 34 and 39.

AG 43 (previously known as VACARVM) is a Principles based methodology which requires the reflection of all material risks directly related to these contracts or their supporting assets. The AG 43 reserve methodology entails both a stochastic simulation, as well as a floor based on a deterministic projection (called the “ Standard Scenario”). For the purposes of the stochastic analysis, the company must run a sufficient number of scenarios that any resulting understatement compared to the result of running more scenarios is not material.

In total AG43 requires a comprehensive and detailed model reflecting all product features and guarantees, all company expenses, fees and charges, and any risk mitigation strategies including reinsurance and hedges held at the valuation date. If the company is following a Clearly Defined Hedging Strategy the costs and benefits of expected future hedges according to the strategy should also be reflected.

AXIS is up to the challenges of AG 43. The methodology behind the calculation is similar to the existing C3 Phase II standard for determining capital requirements on these products, subject to important differences with respect to the Standard Scenario and the treatment of income taxes.

AXIS has offered advanced stochastic processing features needed to perform C3 Phase II since it was introduced in 2005, and has continued to enhance it for purposes of AG 43. Critical components of this feature set include:

• The ability to generate or import externally generated scenarios, both risk neutral and real world,
• Results analysis tools that rank scenario results and calculate tail measures such as the CTE(70 ), a measure required by AG 43,
• The ability to easily identify and drill down into specific tail scenarios to understand and validate model results, and
• Leading edge scalability over multiple cores using proprietary Grid technology.

While the stochastic portion of AG 43 is typically run using a compressed model, due to the number of scenario loops, the Standard Scenario is a deterministic policy by policy calculation, which AXIS can handle for portfolios of any size. AXIS supports both compressed and full seriatim models and can produce both components of AG 43 in one production run.

With the introduction of the Hedge Projection Module in April, 2010, AXIS can now also include the projected impact of various hedge strategies in all AG 43 calculations.

For more information on AXIS, contact us directly.