OUR SERVICES
- portfolio optimization
- quarterly reporting and rebalancing as necessary
- review of ALM conceptual framework, existing strategies
- allow company Life to free up resources devoted to ALM
- ensure ALM best practices are being performed
- in-house training as desired
ASSET MANAGEMENT
Asset Management for Insurance Companies within an ALM Framework For insurance companies, the traditional asset management model can fail to achieve the overall financial objectives even when the investment objectives have been met.
By executing asset management within an ALM framework the true risk exposure can be reduced and substantial value can be added.
Under the traditional model insurance companies are required to translate the overall financial objectives as best they can into investment objectives then specify a liability benchmark with appropriate risk targets that approximate the actual liabilities. Oftentimes the risk limits are specified using metrics that do not fully describe the actual risk exposure. Using this model, even if asset manager beats the benchmark and achieves the investment objectives this does not ensure that the financial objectives will be achieved. Insurance companies can simultaneously realize an increase in portfolio yield and lower financial results due to higher actuarial reserves and/or economic capital required.
Executing asset management within an ALM framework uses the actual liability cash flows, eliminating the reliance on a proxy for the liabilities. This ensures that the actual interest rate risk exposure can be effectively managed and reserves and economic capital minimized.
By executing the asset management function within an ALM framework, companies can add significant value and show immediate improvement to the bottom line. This is accomplished by focusing on the actual overall financial objectives, understanding the interrelationship between increasing total return and decreasing risk exposure, and by managing against actual liability cash flows. ALM strategies are formulated to achieve the financial objectives, then proprietary algorithms are used to optimize the portfolio (i.e. maximize value and minimize risk) on a default free basis and realize significant immediate gains and decrease risk exposure.
The key to formulating and executing effective strategies is to having an in-depth understanding of both the assets and liabilities and how they interrelate. Trying to specify objectives for each side of the balance sheet separately will not necessarily ensure that the overall financial objectives are achieved.