Insurers increasingly feel the need to consider their strategic policy, risks, objectives and constraints in an integral fashion. The Assets & Liabilities Scenario model for insurance companies (ALS Life) was developed with this purpose in mind. Using this system it is, among other things, possible to answer the following questions:
• Which guarantees and options are ‘embedded‘ in the liabilities?
• What is the economic value of these guarantees and embedded options (in a replicating portfolio) and how can we hedge these options using swaps or swaptions?
• What is the impact of various reporting systems on the financial statements?
• What is the optimal strategic asset allocation and what is the optimal interest rate hedging policy?
• What effect does the magnitude and nature of new business have?
• How do the costs and risk reduction of the (liability) reinsurance policy compare?
• What are the consequences of the introduction of the upcoming Solvency II guidelines?
The ALS Life model for insurers is characterized by a number of differentiating features, including:
• Standard stochastic (market) valuations for a wide range of insurance products;
• Simple linking to liability projections from embedded value or other existing liability models;
• Simultaneous stochastic analyses of different balance sheets (tax, commercial, market value) using various different reporting systems;
• High speed calculations, including stochastic valuation of guarantees and embedded options;
• Simple interfacing with other systems through a modular structure. In this way it is for example possible to use the economic scenario generator and the liability module separately;
• Consistency between valuation of (embedded) options and stochastic economic scenarios;
• Transparent and providing insight through many graphical and numerical reports.
A growing number of insurers also make use of ALS Life for other special purpose calculations, such as risk-based capital and solvency testing calculations and the market valuation of liabilities for reporting or product development.
ALS Life forms the basis for the work of our own ALM consultants. In addition to this, we grant user licenses on our advanced ALM software to insurers and other related institutions and companies.