QUESTION: My Core Projections will take a long time to run, so I want to be sure I run all the sensitivity dimensions that I will need for my forecast. I also wish to create a ProVal PS data file based on this forecast. Which sensitivities should I select for my Core Projections?

ANSWER: In general, you should run all sensitivity dimensions: inflation & asset benchmark, (valuation) interest rates and lump sum experience interest rates. That gives you the flexibility to decide at the forecast stage, after you have run your Core Projection(s), whether to vary general inflation, interest rates, the lump sum benchmark yield, and the asset benchmark environment and, consequently, whether there will be variation in experience and valuation assumption items that tend to vary along with sensitivity changes. Please see the Technical Reference article entitled “Interpolation of a Core Projection's results ” for details about how inflation, interest, lump experience interest and asset benchmark sensitivities impact experience and valuation assumption items that are “tied” to them by your Projection Assumptions.

If you wish to use ProVal PS, then you must run the inflation & asset benchmark and interest rate dimensions; otherwise, you will not be able to create the ProVal PS data file (.xps file). (Note: Inflation and interest rates tend to be inextricably linked, so, generally speaking, you would not run one without the other.) The lump sum experience interest dimension is optional.

Appropriate warnings are issued in forecast runs and runs to populate ProVal PS (that is, to create the ProVal PS data file, aka an .pvps file) if not all relevant sensitivity dimensions have been selected in all included Core Projections. In particular, in a forecast run, ProVal will warn if (1) lump sum factor components are referenced but lump sum sensitivity has not been run in the Core(s),or (2) the forecast assumptions (deterministic or stochastic) need variation in a sensitivity dimension but the sensitivities available from the Core(s)do not support it.

Some things to keep in mind when setting up your Core Projections:

1. If you will combine two or more Core Projections in a forecast, it is safest to be consistent in the settings for the sensitivity dimensions. This is especially important for the inflation and (valuation) interest rate sensitivities. If some Cores are run with inflation sensitivity but other Cores are not, or if some Cores are run with interest rate sensitivity but other Cores are not, then all sensitivity dimensions are “thrown out” and the forecast will not vary either inflation or valuation interest – and will not vary any experience or valuation assumptions tied to inflation or interest rate changes.

2. Although lump sum factor components and optional payment forms might not be referenced anywhere in a particular Core, selecting lump sum experience interest sensitivity does no harm; ProVal will ignore this sensitivity if it does not apply and thus will not abort your Core run. In fact, selecting lump sum sensitivity insures that when lump sum factor components and/or optional payment forms are referenced in a Core Projection, lump sum experience interest sensitivity will be run. Otherwise lump sum interest rates, and lump sum factor values and optional payment form conversion factor values that depend on them (including conversion factors specified by a table), will not vary in your forecast and there will be no parameters provided for them in the Financial Sensitivities section of ProVal PS.