Asset-liability management for insurers
No. 6/2000
In recent years, mismatches between assets and liabilities have led to financial distress - and sometimes insolvency - for major insurers in the US, Europe, and Asia. Asset-liability management (ALM), the practice of managing a business so that decisions on assets and liabilities are co-ordinated, allows an insurer to operate not only more soundly, but also more profitably.
Asset-liability management (ALM) for insurers examines the history, issues, and prospects for ALM at life and non-life insurers. Developed in the 1970s in response to a sharp rise in the level and volatility of interest rates, ALM has evolved into a set of techniques that enable financial institutions to manage a host of risks, of which interest rate uncertainty is just one.
The study finds that ALM is likely to play a growing role in the insurance industry. Several forces are at work: Consolidation in the insurance industry is creating ever-larger and more complex companies in need of the risk management tools that ALM offers. Moreover, mergers and acquisitions between insurers and banks will facilitate the spread of ALM best practices and a cross-fertilisation of approaches. Regulators and ratings agencies are focusing increasingly on the ALM practices of the insurers they follow. Finally, dramatic improvements in computer technology support a trend towards more sophisticated modeling techniques.
ALM standardisation is needed. Rallying around a common ALM framework would simplify communication, speed development, reduce costs, and promote adoption. At present, however, several obstacles remain. Basic ALM terms mean different things to different practitioners. Communication between life and non-life ALM practitioners is almost non-existent. Their diversity of approaches limits the usefulness of model output to third parties such as rating agencies and regulators.
This publication can be downloaded in English, German, Spanish, Italian and French.
Download "Asset-liability management for insurers"
Download "Asset-Liability-Management für Versicherer"
Download "Gestión de activos y pasivos para aseguradoras"
Download "La gestion actif/passif à l'usage des assureurs"
Download "L'asset-liability management per le compagnie di assicurazione"
For further questions and copies of Chinese or Japanese versions, please contact sigma@swissre.com.
