Knowledge Base Articles
Part I: Asset and Liability Management Using LSMC - Introduction to the Framework
In the first part of the ”Asset and Liability Management using LSMC” article series, we outline an ALM framework based on a replicating portfolio approach along with a suitable financial objective. This ALM framework, albeit simplified, is constructed to provide a straightforward replication of the complex interactions between assets and liabilities. Moreover, a brief introduction to the LSMC method used to generate all underlying risk factors is presented.
Introduction to Credit Index Modelling
This article will discuss why it is important to model credit indices and detail a number of different approaches to this problem.
Overcoming the Insufficiency of Historical Data; The Rolling Window Method
In this article, we evaluate the rolling window procedure to alleviate the problem of inadequate data by increasing the number of observations extracted from a limited set of data.
Dynamic Management Action plans; the impacts on Solvency Capital Requirement
This article is composed of discussions on dynamic hedging and presentation of a case study in order to investigate the impacts of dynamic management actions on Solvency capital requirement.
Evaluating Management Actions
In this article, we will focus on how management actions used in an internal SCR model can be evaluated and validated. This will be done from a perspective of both risk and return.
Management Actions in a Solvency II World
In this article, we will explain what management actions are. Our main focus will be the regulatory requirements on management actions under Solvency II.
End of LIBOR: A Rising Challenge for The Insurers
Driven by the consequences of the global financial crisis in 2008 and the LIBOR scandal in 2012, the world’s financial regulators set off the search for alternative reference rates that could better reflect the underlying market and would be more difficult to manipulate. Since financial institutions use the reference rates to design contracts of various kinds, the impact of this change will be considerable. However, most of the available analysis and other material on this topic describe the challenges of such a transition only for banks, frequently leaving out the insurers who are significantly affected by the change as well. Therefore, it becomes essential to highlight global best practices regarding the preparation for replacing the -IBOR in the insurance industry.
P&L Attribution: Similarities and Differences between FRTB and Solvency II
In this article, we discuss the challenges of implementing the internal model approach under FRTB and Solvency II. In particular, we focus on the P&L Attribution test, which financial institutions have to continuously perform and pass to maintain their eligibility for internal model use. The article outlines the similarities and differences between the two regulatory regimes that require the P&L Attribution test; FRTB for banks and Solvency II for insurance companies.
Results from the Solvency II Review
In our blog post from last year, we summarised what to expect from the Solvency II regulatory framework review to be performed by the European Insurance and Occupational Pensions Authority (EIOPA). Now, EIOPA has released their final report containing their second set of advice regarding this review.
Mitigating Risk: A Joint Model for High-Yield and Investment-Grade Credit Indices
Today, there are many flawed corporate bond pricing models. However, there is also a novel credit-spread approach that can simulate index prices and accurately capture probability of default, enabling better risk management and regulatory compliance.