Diversification factors and adjusted strDiversification factors and adjusted stress margins

Diversification factors and adjusted stress margins

40. The stressed policy liabilities must be determined using ‘adjusted stress margins’ and management actions for the random, future, event and longevity risks. The adjustments are to allow for diversification between risks. The method for determining the adjusted stress margins and management actions is described in the following paragraphs.
41. The combined impact of the random, future, event and longevity stresses, after allowing for correlations between these stresses must be determined using the formula:

Image unavailable in extracted text

where:

(a) ![](image.004.png) is the capital charge for insurance stress x, summed over all policies in the statutory fund;
(b) ![](image.005.png) is the sum over all combinations of stresses; and
(c) ![](image.006.png) is the correlation between stresses x and y.
42. The specified correlation matrix is:

<table cellspacing="0" cellpadding="0" style="width:417.25pt; border:0.75pt solid #000000; border-collapse:collapse"><tbody><tr style="height:25.5pt"><td rowspan="2" style="width:60.05pt; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:justify"><span></span></p></td><td colspan="2" style="width:102.6pt; border-right:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Mortality</span></p></td><td colspan="2" style="width:102.6pt; border-right:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Morbidity</span></p></td><td rowspan="2" style="width:45.9pt; border-right:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Event</span></p></td><td rowspan="2" style="width:51.35pt; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Longevity</span></p></td></tr><tr style="height:25.5pt"><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Future</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Random</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Future</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Random</span></p></td></tr><tr style="height:19.85pt"><td style="width:60.05pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Mortality Future</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>1</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0.25</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:51.35pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>-0.25</span></p></td></tr><tr style="height:19.85pt"><td style="width:60.05pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Mortality Random</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>1</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:51.35pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td></tr><tr style="height:19.85pt"><td style="width:60.05pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Morbidity Future</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0.25</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>1</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:51.35pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td></tr><tr style="height:19.85pt"><td style="width:60.05pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Morbidity Random</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>1</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:51.35pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td></tr><tr style="height:25.5pt"><td style="width:60.05pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Event</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>1</span></p></td><td style="width:51.35pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; border-bottom:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td></tr><tr style="height:25.5pt"><td style="width:60.05pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p class="BodyText" style="font-size:12pt"><span>Longevity</span></p></td><td style="width:45.9pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-left:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>-0.25</span></p></td><td style="width:45.9pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-left:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-left:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-left:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:45.9pt; border-top:0.75pt solid #000000; border-right:0.75pt solid #000000; border-left:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>0</span></p></td><td style="width:51.35pt; border-top:0.75pt solid #000000; border-left:0.75pt solid #000000; padding-right:5.03pt; padding-left:5.03pt; vertical-align:top"><p style="text-align:center"><span>1</span></p></td></tr></tbody></table>