Asset-liability Management

Question 1

Regulations on investments strategies

Answer 1

Restrictions on types of assets that a provider can invest in
Restrictions on the amount of any particular type of asset that can be taken into account for the purpose of demonstrating solvency
A requirement to match assets and liabilites by currency
Restrictions on the maximum exposure to a single counterparty
Custodianship of assets
A requirements to hold a certain proportion of total assets in a particular class such as government bonds
A requirement to hold mismatching reserve
A requirement on the extent to which mismatching is allowed at all

Question 2

How to manage existing capital by managing assets

Answer 2

asset-liability matching reduces volatility of results of mismatching and reduces solvency requirement

working capital management including banking products such as liquidity facilities

use of financial derivatives to reduce market risk and solvency capital requirement

cautious investing of assets backing solvency capital requirement

Question 3

How to manage existing capital by managing liabilities

Answer 3

transfer risks via reinsurance or ART

consider level of prudence in the liabilties

reduce the level of guarantees

seek efficiencies in the business

Question 4

key factors to consider in constructing asset-liability model

Answer 4

Asset and asset valuation regulations

liability projections

statutory minimum capital and liquidity requirements

expected claims inflation

business/growth strategy and planned premium increases

policy trends

catastrophic events and accumulations of risk

reinsurance coverages

asset characteristics

shareholder risk tolerance

solvency position

spread of different risk groups

expected level of profitability and level of investment return

volumes of new business