Primary objective: Review the current ALM methodology and take corrective actions to fill the gap

Description

• Life Insurer was looking to review and validate the ALM methodology
• Provide advice on reinvestment risk part considering nature of the business
• Examine how cash flows and risks of insurer products affect ALM.
• Consider the global best practices in ALM followed by insurers
• Advise how to enhance the effectiveness of ALM Committees
  

ALM system architecture

CRISIL approach
 

• CRISIL reviewed the current approach followed by insurer and measured the duration of different line of business at a portfolio level
• CRISIL prepared functionality specs for the system, which was based on the philosophy that liabilities form an integral aspect in asset planning and should be considered to decide the asset mix of the fund
• Reviewed various aspects of the current methodology including:
  • Assumptions to check for adequacy, accuracy, conservatism and consistency
  • Interest rate model used by insurer in deriving the risk-free interest rate
  • Reinvestment strategy by investing excess of income over outgo in suitable assets to cover future claims
    
• Provided various recommendations including:
  
  • Notional assets in which client can invest their excess income
  • Elimination of future bonus consideration while calculating liability figures
  • Remedial action to be taken in order to cover the mismatch risk
    

Client impact
 

• Having a dedicated and defined ALM methodology helped client to perform robust analysis
• Helped in process standardization for the client
• The client was able to validate all the changes and report the duration figures to various stakeholder and met the regulatory requirements
  

Questions

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