Asset Averaging under ERA

[Andy the Actuary]

The ERA of ought eight now allows the infusion of an assumed interest rate [3rd segment rate] into the determination of average value but it does not appear the corridor has been expanded. Thus, if assets lost 30% from A_t-1 to A_t, the maximum average value would be 70% x A_t-1 x 110%. or 77% of A_t-1. In short, you're still in the toilet, because you're down nearly 30% (the loss plus what you were expected to earn). Conclusion: Rah!

Any disagreement?

[AndyH]

Agreed. And if we get a recovery above the third segment we have that dragging us. Smoke, mirrors, and a ball and chain.

MISSION ACCOMPLISHED

[dmb]

The ERA of ought eight now allows the infusion of an assumed interest rate [3rd segment rate] into the determination of average value but it does not appear the corridor has been expanded. Thus, if assets lost 30% from A_t-1 to A_t, the maximum average value would be 70% x A_t-1 x 110%. or 77% of A_t-1. In short, you're still in the toilet, because you're down nearly 30% (the loss plus what you were expected to earn). Conclusion: Rah!

Any disagreement?

Agreed and it also doesn't specify which month we get the 3rd segment from when it might matter. Is it implied that its the month of the your funding rate assumptions??

[Andy the Actuary]

The ERA of ought eight now allows the infusion of an assumed interest rate [3rd segment rate] into the determination of average value but it does not appear the corridor has been expanded. Thus, if assets lost 30% from A_t-1 to A_t, the maximum average value would be 70% x A_t-1 x 110%. or 77% of A_t-1. In short, you're still in the toilet, because you're down nearly 30% (the loss plus what you were expected to earn). Conclusion: Rah!

Any disagreement?

Agreed and it also doesn't specify which month we get the 3rd segment from when it might matter. Is it implied that its the month of the your funding rate assumptions??

Sure, and what segment rate do you use to get from A_t-2 to A_ti1? For example, 2009, 2008, or 2007.