2024 ValAct Meeting - Session 9G: Reinsurance ALM Optimization under Bermuda Regulatory Framework 8.28.24 Recording

The post COVID-19 period exhibited a fast-changing capital market with higher interest rates, uncertain monetary policies, and revaluation of asset classes. At the same time, regulators introduced changes to reward better risk management, such as the scenario-based approach for reserving under Bermuda regulatory framework. For life reinsurers, while new opportunities arising from these changes, challenges also exist to be able to adjust reinsurance portfolios and ALM strategies appropriately. A holistic modeling framework can assist companies better position themselves in front of these challenges and other potential future unknowns. In particular, a well-designed stochastic and dynamic modeling framework enables the quantifications of such probabilities and potential impacts. This session discusses the reinsurance ALM optimization with the aid of a case study on life reinsurance business: • The first part introduces the framework and required modeling capabilities to incorporate capital market assumptions, asset and liability projection and interactions, nested stochastic calculation, and performance evaluation. • The second part discusses different ALM strategies such as existing asset portfolio reallocation including both the magnitude and timing of changes, interest rate sensitivity matching (duration, convexity, and key rate duration), cashflow matching, and so on. More importantly, the case study illustrates how these strategies can be compared and selected, either individually or collectively, to meet the objective of maximizing capital usage efficiency under Bermuda Solvency and Capital Adequacy (BSCR) and Scenario based approach (SBA) Learning Objectives: 1. Be able to discuss reinsurance ALM optimization methods and processes. 2. Be able to systematically formulate business objectives including capital efficiency, return and profitability maximizations within practical constrains and considerations.