Providing analysis for making informed financial decisions
across the financial institutions and corporates sECTORS

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Sample Projects

Solvency 2/Individual Capital
Assessment challenges

Hedging bonuses and smoothing costs

Life insurers that target the implementation of internal models for risk management and ICA purposes face a number of challenges such as:
  • Is it best to fit asset returns to parametric or non parametric distributions?
  • How many independent factors affect the risk profile across rates, equities, property, fx, commodities and alternatives?
  • How to reconcile implied and historical volatility inputs?
  • What tenors to use for correlation estimates?
  • Is always the development of a complicated model an optimal solution?

Hedging interest rate guarantees

Legacy books typically contain minimum interest rate guarantees. In a low interest rate environment the management of these liabilities entails a number of challenges such as:

  •   What is the optimal asset allocation in terms of shortfall risk for meeting the guarantees?
  • When to transact tactical interest rate derivative hedges?
  •  What structured derivatives can help alleviate expected shortfall?  

Participating with profits business, both unitised and conventional, require the management of reversionary bonuses (RBs) and smoothing costs. To this end a number of questions arise:

  •  How to optimise the balance between cash flow matching of RBs and equity backing ratio?
  • Does hedging the smoothing cost with vanilla or basket options is more efficient?
  • How to reconcile RB policy with optimal asset allocation?
  • What derivative tenors and strikes to use for tactical hedging purposes? 

Minimising regulatory capital charge for interest rate risk

Regulatory capital requirements for ALM mismatches regarding interest rate risk can be onerous. Insurers face a number of challenges such as:

  • What are the optimal derivative securities that can match the interest rate risk efficiently?
  • When to pay for options and when to execute zero cost structures?
  • How to optimise strike, time to expiry and derivatives' notional?
  • When hedging and when capital raising provides the best alternative?

For answers to the above questions please contact us.