PROCEEDINGS May 15, 16, 17, 18, 2005 - Casualty Actuarial Society

MODELING FINANCIAL SCENARIOS 229FIGURE 22Distribution of Compound Average Real EstateReturns Projection Period: 1 Year to 50 Yearsmodel run. Although the actual unemployment rates have varieda bit more than the model results do, the distributions are quitesimilar.Real estate returns are the final variable included in the financialscenario model. From Table 1, the mean value of realestate returns is 8.1% in the first year and 9.4% after 50 years.The 1st—99th percentile range after 10 years is 3.0% to 16.1%.The funnel of doubt graph (Figure 22) is similar to the returnson stocks, for the same reasons. The histograms of modeledresults and the historical returns based on the National Indexfrom the National Council of Real Estate Investment Fiduciariesfor 1978 through 2003 are shown on Figure 23. Themodel values show a smooth distribution centered about the historicalreturns. Unfortunately, only 26 years of annual returnsare available, so it is difficult to draw any conclusions on thefit.