The non-callable bond should be used to model any type of public or privately traded bond from any source (government, municipal, corporate or otherwise) that contains a level coupon rate until maturity and no other embedded options.
Cash Flows & Timing
All cash flows on the non-callable bond occur at the beginning of each projection month. Cash flows occur in the following order. Cash flows higher up the order may impact the amount of cash flows lower down.
- Default Recoveries
- Coupon Payments
- Principal Payments
Model Point File
The following fields are included on the default Slope Library model point file definition for Non-Callable Bonds.
Asset ID – A string field that is used for identification purposes only. This could be an ID from your asset administration system, the CUSIP, or any other identifier for the model point. This field is not used by any of the variables on the product and is for informational purposes only. It can be safely removed from the model point file definition if not needed.
AVR Line Number – The line number this bond should appear in on the Asset Valuation Reserve. This value is used to lookup the appropriate factors for AVR calculation as well as the RBC C-1 Other factor to apply for Risked Based Capital.
Coupon Payments Per Year – The number of coupon payments made each year. This determines the frequency and amount of the periodic coupon payments. The formulas in this product expects this value to be evenly divisible into 12 in order to properly calculate the payment months (i.e. 1, 2, 4, 6, or 12).
Coupon Rate – The coupon rate of the bond that is used to determine the periodic bond payments. This rate should be entered as a bond-equivalent rate (not annual effective) to ensure the proper bond payments are calculated.
Currency – A string value specifying the currency the bond is denominated in. This value is used to look up rates from the economic scenario file for market value calculations as well as to set coupon rates on new business model points during the asset purchase process. The value specified here must match on the currencies specified on the economic scenario file definition.
Initial Book Value – The book value of the bond as of the projection start date.
Initial Market Value – The market value of the bond as of the projection start date.
Initial Par Value – The par value of the bond as of the projection start date.
Issue Date – The original issue date of the bond. This is used in conjunction with the Term in Months to determine the maturity date of the bond. It is also used to determine when coupon payments occur. This should be the original issue date of the bond, which may not necessarily be the date you purchased it.
NAIC SVO Rating – The bond rating from the NAIC Securities Valuation Office (SVO). This should be a value of 1-6 on callable bonds. This value is used to determine accounting treatment for statutory reporting.
Rating – The rating agency rating of the bond. This value is used to determine the default rates experienced. The default model expects this to be a Moody’s rating since the default lookup table is based on the Moody’s annual default study.
Spread – The credit spread over risk-free rates. This spread is expected to include the expected future risk of default inherent in the bond price. This value is used to calculation market values of the bond as well as when setting the coupon rate on new business model points.
Term in Months – The number of months from the original issue date of the bond to the maturity date. Ex. a 5 year bond would have a value of 60.
This section describes inputs that control how the product works that are not included on the model point file. If these inputs need to vary by model point, then you should modify the formulas to pull the data from an appropriate source.
Coupon Rate – The coupon rate on the bond. This value is read from the model point file Coupon Rate for all in force model points. On new business model points, the coupon rate is determined by looking up the yield curve rate from the scenario file that corresponds to the bond term and adding the Spread from the model point file to that value.
Default Rate – The default rate is the annual effective rate of defaults. This product is set up to read the default rates from a table which is based on the Moody’s default study. It uses the Rating from the model point file, and the number of years since issue to look up a default rate.
Default Recovery Rate – This specifies a percentage of the current market value of assets that default that will be recovered as cash. By default, this value is set as 0.
GAAP Classification – An integer value that indicates how the asset is reported on the GAAP Balance sheet. The following 3 options are available.
- Available For Sale (AFS)
- Held to Maturity (HTM)
AFS and Trading assets are held at Market (Fair) Value. Held to Maturity assets are reported at amortized cost. By default the product is set to classify all assets as Available For Sale (1).