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    What is ALM?

    Asset Liability Management 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.  [1]Society of Actuaries ALM Principles Task Force

    When is ALM used?

    i.e. given that the definition above states that ALM is used to determine strategies, what strategies are we talking about ?

    • Determining financial strength
    • Portfolio construction
    • Determine appropriate risk budget

     

    • Setting investment strategy  ??but how??
    • Risk budgeting  ??but how??
    • Presumably it is used for the SCR as the SCR is modelling asset and liabilities under different stress conditions and adding up the capital shortfalls i believe...  so more generically ALM is required in order to calculate capital requirements under regulatory requirements
      • extrapolating this line of thought further, ALM is used to calculate capital requirements, whether it is on a regulatory basis or an economic basis
        • what is economic capital ??

    A job advert for an ALM actuary asked for the following:

    • hedge company’s market risk exposure  i am thinking up a process here for function section...  model A and L.  shock with market risk, and see the shortfalls...  now make tweaks to various things e.g. investments, management actions, bonuses...  what other choices are there.    sounds like i need to get knowledgeable on investments.
    • Develop the efficiency of the group’s capital position,  what does this mean in practice?
    • Good understanding of hedging instruments  what are we talking about here?

     

    Another advert asked the followingL

    • development and execution of the companies ALM practice
    • analysis of liabilities needed for proper design of asset strategies for select markets
    • support design and implementation of ALM strategies and metrics
    • risk budget framework
      • monitor the market risk exposure
      • develop the investment strategy using ALM tools
      • interest rate risk management methodology
    • develop asset strategies to back liabilities associated with longer duration products
    • influence the overall product design that mitigates investment risks.
    • Due to the nature of the role, the job holder will need financial modelling skills, preferably in either MG-ALFA or Prophet, and have experience in designing appropriate reporting and control frameworks to assess ALM of the organisations portfolios.

     

    References

    References
    1 Society of Actuaries ALM Principles Task Force