Friday, January 20, 2012

Scenario 242 Sucks

It is normal in the course of setting capital requirements and evaluating asset adequacy for actuaries to identify troubling scenarios.  The present value of the worst accumulated deficiency is a notorious reporting value.
What most actuaries don’t know is what exactly generates such poor performance.  Sure equities drop, or interest rates behave adversely, but there are other more troubling items that aren’t immediately apparent.  Take, for example, the most recent C3P2 results. 

It turns out that scenario 242 wreaks havoc on the annuity block.  But what is driving this?

Well first off, it predicts the collapse of Starbucks.  The loss of such a crucial provider of caffeinated luxuries will be a huge blow to the economy. 
Second there is a tech implosion.  Apple is bought by Google, who in turn is bought by Yahoo!. In a last ditch effort to earn profits they release the iYah-Goo-pad and it significantly underperforms sales expectations.
The macro economic situation is so bad, that all existing countries merge into three distinct nationalities: Canadicans, Chipanese, and Afropeans.
In such a morbid picture of the world, the only consolation we have is that we have incorporated its effects in our models and have taken risk mitigation steps so that we can endure it.
 image courtesy of the U.S. Geological Survey

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