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

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What is it and why is it used?

Managing Assets and Liabilities: Strategies for Insurance Companies

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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

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Managing Assets and Liabilities: Strategies for Insurance Companies

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Managing Assets and Liabilities: Strategies for Insurance Companies

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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

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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

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All lines of business
All risks requiring