Managing Assets and Liabilities-Strategies for Insurance Companies
Managing Assets and Liabilities:
Strategies for Insurance
Companies
October 2008
Financial Services Commission of Jamaica
Insurance Seminar - October 30, 2008
Michael Hafeman, FSA, FCIA, MAAA
Context for Asset-Liability Management
Risks and Risk Tolerance
Risk Measurement
ALM Techniques
Organizational Issues
Supervisory Objectives
Managing Assets and Liabilities: Strategies for Insurance Companies
2
What is it and why is it used?
Managing Assets and Liabilities: Strategies for Insurance Companies
3
Managing Assets and Liabilities:
Strategies for Insurance
Companies
October 2008
ALM is the ongoing process of formulating, implementing, monitoring, and revising strategies related to assets and liabilities to achieve financial objectives, for a given set of risk tolerances and constraints.
Society of Actuaries
Managing Assets and Liabilities: Strategies for Insurance Companies
4
Managing Assets and Liabilities: Strategies for Insurance Companies
5
Managing Assets and Liabilities: Strategies for Insurance Companies
6
Managing Assets and Liabilities:
Strategies for Insurance
Companies
October 2008
Profits mostly on spread
Cash flows to reinvest
Liabilities payable on pre-set dates
Difficult to find assets to match liability flows
Embedded options
Investment performance guarantees
Potential reinsurance settlement time lags
Claims volatility
Managing Assets and Liabilities: Strategies for Insurance Companies
7
Nissan Mutual: long-term rate guarantees
General American: cashable debt instruments
Baldwin United: long-term assets and liabilities that became short-term
Jamaica financial crisis
◦ Deposit-like liabilities
◦ Long-term real estate assets
◦ Interest rates increased
Asset values declined
Liquidity was inadequate to meet liabilities
Managing Assets and Liabilities: Strategies for Insurance Companies
8
All lines of business
All risks requiring
Strategies for Insurance
Companies
October 2008
Financial Services Commission of Jamaica
Insurance Seminar - October 30, 2008
Michael Hafeman, FSA, FCIA, MAAA
Context for Asset-Liability Management
Risks and Risk Tolerance
Risk Measurement
ALM Techniques
Organizational Issues
Supervisory Objectives
Managing Assets and Liabilities: Strategies for Insurance Companies
2
What is it and why is it used?
Managing Assets and Liabilities: Strategies for Insurance Companies
3
Managing Assets and Liabilities:
Strategies for Insurance
Companies
October 2008
ALM is the ongoing process of formulating, implementing, monitoring, and revising strategies related to assets and liabilities to achieve financial objectives, for a given set of risk tolerances and constraints.
Society of Actuaries
Managing Assets and Liabilities: Strategies for Insurance Companies
4
Managing Assets and Liabilities: Strategies for Insurance Companies
5
Managing Assets and Liabilities: Strategies for Insurance Companies
6
Managing Assets and Liabilities:
Strategies for Insurance
Companies
October 2008
Profits mostly on spread
Cash flows to reinvest
Liabilities payable on pre-set dates
Difficult to find assets to match liability flows
Embedded options
Investment performance guarantees
Potential reinsurance settlement time lags
Claims volatility
Managing Assets and Liabilities: Strategies for Insurance Companies
7
Nissan Mutual: long-term rate guarantees
General American: cashable debt instruments
Baldwin United: long-term assets and liabilities that became short-term
Jamaica financial crisis
◦ Deposit-like liabilities
◦ Long-term real estate assets
◦ Interest rates increased
Asset values declined
Liquidity was inadequate to meet liabilities
Managing Assets and Liabilities: Strategies for Insurance Companies
8
All lines of business
All risks requiring