Investment principles and ALM

Question 1

• The risk appetite of the insurer will depend upon its

Answer 1

o Liabilities
o Assets
o External influences
o Insurer-specific constraints

Question 2

• Assets should match liabilities by

Answer 2

o Term
o Amount
o Nature
o Currency

Question 3

non-investible funds are moneys held by

Answer 3

o Agencies
o Policyholders
o Reinsurers

Question 4

• Asset liability modelling (ALM) (6)

Answer 4

o The model projects asset proceeds and liability outgo simultaneously based on a deterministic or stochastic model
o Free reserves and their proceeds are treated as a balancing item
o Different investment mixes are run through the model to determine asset mixes which give sufficient proceeds to meet liability outgo at all times. The aim is to determine the optimal investment strategy in line with the insurer’s investment goals.
o The model may include new business, in which case it is more complex
o ALM can also be used to determine solvency capital or in a wider capital management program
o Stress and scenario testing can also be used to set or test an investment strategy