Asset Liability Management (ALM) and Risk Management in Insurance Companies
Insurance companies employ a variety of strategies to manage the myriad of risks they face. For example, some strategies used to manage net investment spread may include strategic asset allocation and the use of derivatives within an overall internal risk management framework. Depending on the goals of the program, the interest rate sensitivities of the assets may be matched with the interest rate sensitivities of the liabilities. Or they may mismatch these sensitivities creating what is known as a gap, in an attempt to earn a higher net investment spread. Further, customer behavior and the market environment may change impacting sensitivities. Companies’ business mix, e.g., different life insurance and annuity offerings, will also play a role in managing net investment spread.
Liquidity is managed by analyzing cash flows to ensure there is cash on hand to meet ongoing obligations. This can be achieved by setting internal benchmarks and monitoring these flows on an ongoing basis. Risk-based capital will be discussed as capital plays a vital role in ALM. Asset liability management is often interwoven with risk management. Risk management may include additional metrics, such as value at risk or stress testing scenarios, and may simply be part of the ALM process.
Course Objectives
By the end of the course, participants will be able to:
- Define and explain the role of asset and liability management within the context of an insurance company
- Recognize that risk management is a process and a culture
- Analyze risk measurements
- Explain and analyze ALM strategies to manage risk
- Describe duration and how it is used to manage interest rate risk
- Analyze how derivatives are used to hedge interest rate risk
- Discuss the difference between property and casualty and life insurance liabilities
- Discuss liquidity and how it is managed
- Explain risk-based capital
- Identify other risks such as equity and foreign exchange risk
Course Requirements:
Prerequisites: A fundamental understanding of capital markets and derivatives
Program Level: Intermediate
Advance Preparation: None
Recommended CPE Credits: 7
For more information on this course, contact us at +1-516-935-0923 or [email protected]!