Asset and Liability Management for Banks and Insurance by Marine Corlosquet-Habart, William Gehin, Jacques Janssen,

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By Marine Corlosquet-Habart, William Gehin, Jacques Janssen, Raimondo Manca

This booklet introduces ALM within the context of banks and insurance firms. even if this method has a center of basic frameworks, versions might fluctuate among banks and insurance firms end result of the diversified hazards and ambitions concerned. The authors evaluate and distinction those methodologies to attract parallels among the commonalities and divergences of those prone and thereby offer a deeper realizing of ALM in general.

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SLT health risk arises from the underwriting of health (re)insurance obligations, pursued on a similar technical basis to life insurance, and is associated with both the perils covered and processes used in the conduct of the business; – catastrophe (CAT) risk, which covers the risk of loss, or adverse changes in the value of insurance liabilities, resulting from the significant uncertainty of pricing and provisioning assumptions related to the outbreaks of major epidemics, as well as the unusual accumulation of risks under such extreme circumstances; – non-SLT health risk, which refers to health insurance obligations not pursued on a similar technical basis to that of life insurance.

Just like in Basel II for banking, Solvency II also has a three pillar structure, with each pillar governing a different aspect of the Solvency II requirements and approach. 2, the three pillars are the following: quantitative requirements, supervisor review and disclosure requirement. 2. The three pillar structure of Solvency II Pillar 1 defines the quantitative requirements for the calculation of technical reserves and own funds: – technical reserves are assessed on a current exit value basis, as the sum of: - the best estimate of liabilities (BELs), which is the expected present value of future cash-flows, discounted with the risk-free interest rate, - the risk margin, which is the cost of providing the required capital until the end of all the insurers’ obligations; Risks Studied in ALM 19 – two levels of capital requirements capturing all quantifiable risks affecting the balance sheet are: - the solvency capital requirement (SCR), which is the target capital requirement.

049 million will represent the VaR value for this investment. 5. , n} . 22] j =1 In many cases, the asset flow can be considered as hedging for covering the liability flow that is giving sufficient cash flows to pay the liability dues at determined maturities. 23] where ΔS (i ) = S (i + Δi ) − S (i ). 24] CV G S (i) = [CV A (i ) A(i ) − CVB B (i ) ], respectively called global modified duration and global convexity of the surplus S. 25] Let us now point out that the two new indicators may be negative.

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