Summary

The annuity tool is used to value reserves on a claim by claim basis, where we believe or know that the
payments are in the form of an annuity. The tool takes inputs from the user and projects the cashflows in
the future based on assumptions of client and the reinsurer. The basic logic is explained in the next
section.

Logic of the Annuity tool

The working of the annuity tool is as follows:

1. Define claims with information in the input sheet
2. Various cases have been made depending upon the type of information received from the cedant.
The formulas in the unwind template depend on the case detected. These formulas are defined in
the Macro. The case is detected based on the information mentioned in the Input Sheet. The
formulas for case detection can be found in "Basic-Claims" column BE.

3. Press the unwind button: This loops through each row on the Input Sheet, 11 onwards and inputs
the details in the unwind sheet to come up with an expected cashflow for the claim in column XX
of the unwind Sheet,
4. This CF is copied in the Results sheet Column XX onwards
5. Move to the next claim and repeat the process.

The Sheets used for calculations are:

Input Sheet: Data used for Unwinding and rewinding
1. Contains claims details such as Gender, year of Birth, Reserves for each head of loss – Loss of
Income, Healthcare and Lumpsum, FGU Paid till date, stabilization factor, Paid into the layer.
 2. Client Assumptions include tech discount rate (yield – inflation), mortality table used,
impairments – additive and multiplicative if any.
3. SR Assumptions include inflation for Loss of Income (LOI) and Health Care/Lifelong (HC)
components, Mortality table and impairments (shift and multiplicative) if any
4. Contract conditions include – layer attachment and cover, SR Share, Margin, Indexation to be
applied on paid/incurred, base year for index

Unwind Sheet: Unwinding and Rewinding of claims

Column B contains the claim details and contract conditions picked and pasted from the input sheet.
Unwinding calculations
1. Mortality calculation is done in columns I:O.
a. We get Mortality rates - qx - and calculate the survival probability at that age as 1-q x
b. The cumulative survival probability is px-1* px
c. Shift the qx based on the shift/impairment mentioned in the data sheet.
d. Calculate the survival probability as mentioned in step b for loss of income, Life long and
others depending on the year till when the payment is made. For example if a loss of
income payment is made till the year 2065 then, qx at 2065 is 1, survival probability = 0
hence, expected payments will be 0
2. Column Q:Z calculates the indexed payments, indexed reserves based on stabilization factors.
The current stabilization factors are obtained from the Cockpit/BOXI reports. Stabilization
factors are used to increase layer values in line with inflation every year. (Stabilization factors
are projected in step 7)
a. Calculate the indexed reserves based on the index. This is calculated as Reserves / Index
for current year * 100
b. (Paid to date + Reserves) / Stabilization factor – Indexed Reserves
c. Indexed cover = Cover * Stabilization factor
d. Indexed Excess = Excess * Stabilization factor
3. Column AI to AK calculates the discount factor based on the tech discount rate of client
assumptions.
a. The tech discount rate is the yield – inflation and is input as a number in the input sheet
b. For year 1, discount is 100%. For year <> 1 , discount factor for current year is calculated
−1
as d i= ∗d where i is the current year.
( 1+ techdiscount rate) i−1
c. This is done for Lifelong, Loss of Income and Other components of payout depending on
the different tech discount rate.
4. AM:AO calculates the capitalization factor
a. The capitalization factor is dependent on the future discount factors and survival
probabilities and is calculated as
ω
Capitalisation Factor=∑ d i pi
i=i
b. This is done for Lifelong, Loss of Income and Other components of payout depending on
the different tech discount rate.
5. Based on the From Ground-Up (FGU) Reserves for each head of loss in AP:AS, columns
AT:AW calculates the real FGU annuity payment to be made
a. Real annuity Payment = FGU Reserves / Capitalization Factor for year i
 b. This is done for Lifelong, Loss of Income and Other components of payout
6. AY:BB Calculates inflation factor and inflates payments based on these factors in columns
BC:BF
a. Lifelong and Loss of Income inflation factors are Inf i=Inf i−1∗(1+inf i)
b. Inflated payments for year i is Real annuity Payment * Inf i
7. BJ:BQ does stabilization calculations.
a. FGU Reserves at end of year i = LifeLong Capitalization * LifeLong Real + LOI
capitalization * LOI Real + Lumpsum over all years
b. Adjustment factor is calculated based on Type of Indexation and Index values
c. Indexed Payment = Adjustment factor * Real Annuity Payment
d. Indexed Reserve = Adjustment factor * FGU Reserves at end of year i
e. Total Incurred = FGU Reserves at end of year i + Cum inflated Paid till date
f. Total Indexed = Indexed Paid till date + Indexed Reserves
g. Stabilisation factor for year i = Total Incurred / Total Indexed
Rewinding Calculations
1. BS:BZ does mortality calculation based on the specified Swiss Re mortality rate. The survival
probability and impairment-adjusted probability are calculated the same way as for Unwinding
calculations.
2. CB:CH calculates the cash flow ceded to the reinsurer.
a. Excess for year i = Stabilization factor for year i * Excess
b. Cover for year i = Stabilization factor for year i * Cover
c. Layer Paid loss for year i= Min ( Max ( Loss – Excess for year i, 0) , Cover for year i )
d. Incremental loss for year i = Layer Paid loss for year i - Layer Paid loss for year i-1
e. Expected incremental loss for year i = SR Survival Probability * Incremental loss for
year i
f. XOL Reservei = FGU Paidi + FGU Reservei – Excess for year i – Layer Paidi
3. CK:EB considers the Swiss Re share in each layer by considering the cover and attachment
points.
a. Layer Excess and Cover for each layer are calculated in the same way as Step 2
b. Layer loss is calculated in the same was as in step 2c
c. Incremental layer loss is calculated in the same was as in step 2d
d. SR's Share of payout = Incremental Layer Loss * SR Share for the respective Layer
e. We sum over all the payouts over all the layers to get the rewinded nominal reserves

Other Sheets containing assumption data:

 Mortality sheet contains the mortality table's mortality rates - q x.
 Indices sheet contains the indices to be used for stabilization
 SR-Yield defines the yield curve to be used to discount the payments