Assignment question X4.7

[studentmb]

This questions asks how you would set up an Asset Liability model.

a) Is this an independent question of how you would set up a model full stop? (cue cards 2 and 3 in the capital model section)
or
do we need to explain first how to set up any model and then make it specific to A-L?

b)
I guess a follow on question from that is do the examiners classify a A-L model as the same thing as a capital model? I have always thought of a capital model as just modelling assets and liabilities, but more to look at business as a whole/make many day to day decisions rather than solely to decide on an investment strategy (which the notes imply A-L models are for).

 

[Katherine Young]

Hi again studentmb,

a) You'll need to discuss the steps in building a model, and also apply this specifically to an ALM, ie a model for developing an investment strategy.

b) You might like to review Chapter 17, pages 30-33:

ALM is a catch-all term, that could encompass models of varying complexity, but will probably bring together the liability models and the asset models that the insurer already has in place. (Pages 30-31 tell us this.)

The term ALM is commonly used in determining an investment strategy. (This is discussed on page 32.)

However, it can also be used to determine solvency capital, or as a wider capital management programme. (This is discussed on page 33.)

Kind regards,

Katherine.

 

[studentmb]

Thanks!

I'm starting to see the added benefit of buying electronic notes - you can search for things easily, I was struggling to locate things in the paper notes. Note to self: buy electronic for the next sitting!