Cash Flow Testing / Asset Adequacy Analysis

The primary purpose of CFT is to determine if reserves (and associated assets) are adequate to fund the policy requirements under reasonable (but not all) circumstances.  Below is an example of the actuarial work we perform and the output we provide.  A testing date of 9/30 is frequently used.  This allows us to identify management action that could offset any potential reserve adjustments prior to year-end.  We generally are able to use this analysis to support the Actuarial Opinion as of 12/31 with minimal additional work.
Our Cash Flow Testing process includes the following activities: 
  • Build model plans representing the majority of business, utilizing GGY AXIS Modeling Software.           
  • Notional allocation of assets to various lines of business as 
    appropriate.
  • Modeling of both Schedule D (bonds & CMO’s) and Schedule B (mortgages) assets.   
  • Financial asset and liability projections by line of business.
  • Development of C-3 Phase I Cash Flow component for RBC purposes.
A complete report summarizing the interest risk profile of your business  and expected cash flows will be  provided:
  • Executive summary including summary results and any  recommendations resulting from a review of the analysis.
  • Description of scenarios and sensitivity tests.
  • Expected cash flows and income for each line of business and in total under various scenarios.
  • Summary of assumptions and descriptions of all model plans.
  • 12/31 Opinion and Memorandum.
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