I think I may have answered this question by going on to describe suitable assets of matching term, nature and currency (and the principle around this). I'd like to understand the key words in this question that I may have missed ito guiding me to describe asset liability modelling? The question is structured as "describe how it will identify appropriate assets...? Perhaps my understanding is flawed. I was under the impression that choosing matching assets is mostly centred around term, nature and currency and that AL modelling is aimed more at assessing the impact (on solvency) of deviating from a matched position?
A few thoughts: The first part of the instruction here is "Describe how ..." something will be done. This suggests a process might be required, so it's worth considering what that process might be. As an actuary, doing some process often involves modelling, so that's a good guide that models / cashflows / assumptions etc may be involved in the solution. It's always worth looking for the word "and" in the instruction too. In this case, we want the process AND factors that will be considered. These factors might often be practicalities, risks, etc. Best wishes Lynn
Broadly I'd be tempted to blur the boundaries a little more though. So, for example, it might not be trivial to find matching assets (by term, nature etc) and so could use ALM to try out different possible "matching" portfolios of assets and see how the asset cashflows behve compared to the liability cashflows in different future conditions.
