As noted earlier, there was a presentation at Staple Inn yesterday evening on equity release mortgages, and this appears to be the paper. The strange jumble of ideas presented in the paper is connected with a much deeper question, namely why it took so long (more than four years) for the PRA to decide how to value a simple European option.
No halfway house
The final PRA policy statement on equity release mortgages has too much to review in one post, so I will start with the tricky subject of Brownian motion.
Out today
Policy Statement 31/18 was published this morning. Contains a lengthy section addressing comments to the proposals of CP 13/18.
The main part which will interest the market is the removal of the proposals relating to the TMTP (paragraphs 3.9A, 3.24 and 3.25). Para 3.25 is the one that reads:
3.25 Although the PRA does not consider the purpose of TMTP to be a transitioning of an updated assessment of risk, the PRA does recognise that the consequences of applying the new calibrations in the proposed updates to SS3/17 when calculating their ICAS illiquidity premium may be significant for some firms. In such cases, the PRA would consider making a proportionate allowance for that impact on the firm. The PRA would expect this to be a short phase-in period, dependent on the circumstances of the firm, unlikely to exceed three years in any event. The PRA would not expect firms to require this phase in period in relation to calculating their ICAS illiquidity premium consistently with principles (ii)-(iv) in SS3/17 already published in July 2017.
The updated CP is here
We will comment later!
More bloodbath
No one who is not utterly preoccupied with Brexit can have missed the dramatic downturn in the markets this week.
Continue reading “More bloodbath”Prudence
I was at a reception last night with our friends from International Accounting Standards present, when someone brought up the subject of ‘prudence’ in accounting. As usual, battle lines formed straight away, although luckily no one was hurt.
Stressed up
Jonathan Ford’s recent article in the FT 1 prompted some extraordinary comments. It’s great to know that ordinary working people are still stressed up by financial stability. But what’s all the fuss about?
Bits and pieces
InsuranceERM covered our paper on Equity Release and the Institute yesterday. They are also advertising a conference in February, where I will be speaking on whether arbitrary discount rates are consistent with IFRS principles.
On other matters, the Institute have now published this presentation at Life Conference by the Equity Release Working Party, the one which actuaries voted on, as we reported last week. Note the whacking great disclaimer on the second page stating that ‘The IFoA and our employers do not endorse any of the views stated … in this presentation’, a standard boilerplate that normally appears at the end of presentations bearing the Institute’s logo. What is the Institute worried about?
Stress fest
It’s November again and time for the annual Bank of England stress test results.
To be honest I don’t take too much notice of these. The tests are hardly going to show that the UK banking system is not resilient to deep simultaneous recessions in the UK etc etc., although they may show Brexit is the worst thing ever.
But I was sad to see one chart has gone missing.
Insurance Risk & Capital EMEA
I (DB) will be appearing (for a panel discussion) at the Insurance Risk & Capital EMEA Conference 3-4 December. See the Day 2 agenda. The discussion is about the possible impact of IFRS 17. This will include the question of whether actuarial teams should be involved as well as finance, understanding the impact on capital modelling and capital planning etc.
Still unbuffetted
In a September post I suggested that Warren Buffett had no grasp of option delta (sensitivity of option price to changes in the market). A number of people have privately challenged me on this. Buffett is a smart guy, any smart person understands option pricing, ergo etc.
On the contrary.