13 unchanged sentences
Chubb views its variable annuity reinsurance business as having a similar risk profile to that of catastrophe reinsurance with the probability of long-term economic loss relatively small, at the time of pricing.
−Removed: Adverse changes in market factors and policyholder behavior will have an impact on both Life Insurance underwriting income and net income.
+Added: Adverse changes in market factors and policyholder behavior will have an impact on both realized gains (losses) and net income for GLB and both Life Insurance underwriting income and net income for GMDB.
When evaluating these risks, we expect to be compensated for taking both the risk of a cumulative long-term economic net loss, as well as the short-term accounting variations caused by these market movements.
Therefore, we evaluate this business in terms of its long-term economic risk and reward.
−Removed: Net income is directly impacted by changes in benefit reserves calculated in connection with reinsurance of variable annuity guarantees.
−Removed: In addition, net income is directly impacted by changes in the fair value of the GLB liability (FVL), which is classified as a derivative for accounting purposes.
−Removed: The FVL established for a GLB reinsurance contract represents the difference between the fair value of the contract and the benefit reserves.
−Removed: Benefit reserves and FVL calculations are directly affected by market factors, including equity levels, interest rate levels, credit risk, and implied volatilities, as well as policyholder behaviors, such as annuitization and lapse rates, and policyholder mortality.
−Removed: The tables below are estimates of the sensitivities to instantaneous changes in economic inputs (e.g., equity shock, interest rate shock etc.) or actuarial assumptions at September 30, 2020 of the FVL and of the fair value of specific derivative instruments held (hedge value) to partially offset the risk in the variable annuity guarantee reinsurance portfolio.
+Added: For the GMDB reinsurance business, net income is directly impacted by changes in future policy benefit reserves.
+Added: For the GLB reinsurance business, net income is directly impacted by changes in the fair value of the GLB liability (FVL), which is classified as a derivative for accounting purposes.
+Added: The FVL calculation is directly affected by market factors, including equity levels, interest rate levels, credit risk, and implied volatilities, as well as policyholder behaviors, such as annuitization and lapse rates, and policyholder mortality.
+Added: The tables below are estimates of the sensitivities to instantaneous changes in economic inputs (e.g., equity shock, interest rate shock etc.) or actuarial assumptions at March 31, 2021 of the FVL and of the fair value of specific derivative instruments held (hedge value) to partially offset the risk in the variable annuity guarantee reinsurance portfolio.
The following assumptions should be considered when using the below tables:
−Removed: • No changes to the benefit ratio used to establish benefit reserves at September 30, 2020.
• Equity shocks impact all global equity markets equally
12 unchanged sentences
AA-rated credit spreads are a proxy for both our own credit spreads and the credit spreads of the ceding insurers.
−Removed: • The hedge sensitivity is from September 30, 2020 market levels and only applicable to the equity and interest rate sensitivities table below.
+Added: • The hedge sensitivity is from March 31, 2021 market levels and only applicable to the equity and interest rate sensitivities table below.
• The sensitivities are not directly additive because changes in one factor will affect the sensitivity to changes in other factors.
2 unchanged sentences
The calculation of the FVL is based on internal models that include assumptions regarding future policyholder behavior, including lapse, annuitization, and asset allocation.
−Removed: These assumptions impact both the absolute level of the FVL as well as the sensitivities to changes in market factors shown below.
−Removed: Actual sensitivity of our net income may differ from those disclosed in the tables below due to differences between short-term market movements and management judgment regarding the long-term assumptions implicit in our benefit ratios.
+Added: assumptions impact both the absolute level of the FVL as well as the sensitivities to changes in market factors shown below.
+Added: Actual sensitivity of our net income may differ from those disclosed in the tables below due to fluctuations in short-term market movements.
• In addition, the tables below do not reflect the expected quarterly run rate of net income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period.
−Removed: All else equal, if markets remain unchanged during the period, the Gross FVL will increase, resulting in a realized loss.
+Added: All else equal, if markets remain unchanged during the period, the FVL will increase, resulting in a realized loss.
This realized loss occurs primarily because the guarantees provided in the underlying contracts continue to become more valuable even when markets remain unchanged.
−Removed: We refer to this increase in Gross FVL as “timing effect”.
−Removed: The unfavorable impact of timing effect on our Gross FVL in a quarter is not reflected in the sensitivity tables below.
−Removed: For this reason, when using the tables below to estimate the sensitivity of Gross FVL in the fourth quarter of 2020 to various changes, it is necessary to assume an additional $5 million to $45 million increase in Gross FVL and realized losses.
−Removed: The impact to Net income is partially mitigated because this realized loss is partially offset by the positive quarterly run rate of Life Insurance underwriting income generated by the variable annuity guarantee reinsurance portfolio if markets remain unchanged during the period.
−Removed: Note that both the timing effect and the quarterly run rate of Life Insurance underwriting income change over time as the book ages.
+Added: We refer to this increase in FVL as “timing effect”.
+Added: The unfavorable impact of timing effect on our FVL in a quarter is not reflected in the sensitivity tables below.
+Added: For this reason, when using the tables below to estimate the sensitivity of FVL in the second quarter of 2021 to various changes, it is necessary to assume an additional $5 million to $45 million increase in FVL and realized losses.
+Added: Note that both the timing effect and the quarterly run rate impact to net income change over time as the book ages.
Sensitivities to equity and interest rate movements
2 unchanged sentences
Interest Rate Shock +10% Flat -10% -20% -30% -40%
−Removed: +100 bps (Increase)/decrease in Gross FVL $ 386 $ 243 $ 80 $ (105) $ (313) $ (545)
+Added: +100 bps (Increase)/decrease in FVL $ 331 $ 225 $ 95 $ (71) $ (275) $ (530)
Increase/(decrease) in hedge value (77) — 77 154 230 307
Increase/(decrease) in net income $ 254 $ 225 $ 172 $ 83 $ (45) $ (223)
−Removed: Flat (Increase)/decrease in Gross FVL $ 157 $ — $ (177) $ (375) $ (596) $ (834)
+Added: Flat (Increase)/decrease in FVL $ 135 $ — $ (164) $ (360) $ (598) $ (892)
Increase/(decrease) in hedge value (77) — 77 154 230 307
Increase/(decrease) in net income $ 58 $ — $ (87) $ (206) $ (368) $ (585)
−Removed: -100 bps (Increase)/decrease in Gross FVL $ (52) $ (220) $ (406) $ (618) $ (847) $ (1,097)
+Added: -100 bps (Increase)/decrease in FVL $ (102) $ (261) $ (450) $ (672) $ (943) $ (1,272)
Increase/(decrease) in hedge value (77) — 77 154 230 307
3 unchanged sentences
dollars) +100 bps -100 bps +2% -2% +2% -2%
−Removed: (Increase)/decrease in Gross FVL $ 87 $ (96) $ (1) $ 1 $ (9) $ 9
+Added: (Increase)/decrease in FVL $ 60 $ (68) $ (1) $ 1 $ (15) $ 15
Increase/(decrease) in net income $ 60 $ (68) $ (1) $ 1 $ (15) $ 15
2 unchanged sentences
dollars) +20% +10% -10% -20%
−Removed: (Increase)/decrease in Gross FVL $ 21 $ 11 $ (11) $ (22)
+Added: (Increase)/decrease in FVL $ 18 $ 9 $ (9) $ (18)
Increase/(decrease) in net income $ 18 $ 9 $ (9) $ (18)
1 unchanged sentence
dollars) +50% +25% -25% -50%
−Removed: (Increase)/decrease in Gross FVL $ 131 $ 68 $ (73) $ (153)
+Added: (Increase)/decrease in FVL $ 86 $ 47 $ (52) $ (110)
Increase/(decrease) in net income $ 86 $ 47 $ (52) $ (110)
2 unchanged sentences
dollars) +50% +25% -25% -50%
−Removed: (Increase)/decrease in Gross FVL $ (606) $ (322) $ 372 $ 794
+Added: (Increase)/decrease in FVL $ (393) $ (208) $ 229 $ 463
Increase/(decrease) in net income $ (393) $ (208) $ 229 $ 463
1 unchanged sentence
All our VA reinsurance treaties include annual or aggregate claim limits and many include an aggregate deductible which limit the net amount at risk under these programs.
−Removed: The tables below present the net amount at risk at September 30, 2020 following an immediate change in equity market levels, assuming all global equity markets are impacted equally.
+Added: The tables below present the net amount at risk at March 31, 2021 following an immediate change in equity market levels, assuming all global equity markets are impacted equally.
a) Reinsurance covering the GMDB risk only
5 unchanged sentences
As the shocks in the table above become incrementally more negative, the impact on the NAR and claims at 100 percent mortality begin to drop due to the specific nature of these claim limits, many of which are annual claim limits calculated as a percentage of the reinsured account value.
−Removed: There is also some
−Removed: impact due to a small portion of the GMDB reinsurance under which claims are positively correlated to equity markets (claims decrease as equity markets fall).
+Added: There is also some impact due to a small portion of the GMDB reinsurance under which claims are positively correlated to equity markets (claims decrease as equity markets fall).
b) Reinsurance covering the GLB risk only
10 unchanged sentences
The treaty limits control the increase in the GMDB net amount at risk as equity markets fall.
−Removed: The GMDB net amount at risk continues to grow as equity markets fall because most of these reinsurance treaties do not have annual claim limits calculated as a percentage of the underlying account value.
+Added: The GMDB net amount at risk continues to increase as equity markets fall because most of these reinsurance treaties do not have annual claim limits calculated as a percentage of the underlying account value.
The treaty limits cause the GLB net amount at risk to increase at a declining rate as equity markets fall.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.