Description: The impact of Fed’s QE program on the financial markets has been enormous and profound. The tapering and the eventual removal of the stimulus will be equally enormous and profound, and may be disruptive. To adapt to the potential regime change in near future, some investment strategies have been proposed: (1) shorten duration to focus on the short end of the yield curve and create laddered portfolios; (2) reduce allocation to high yield bonds; (3) rotate out interest rate sensitive sectors such as utilities; and (4) use interest rate derivatives to hedge the interest rate uncertainties lying ahead. On the other hand, contrarians who see the QE program continuing may stay the course and consider (1) adding duration, (2) gaining exposure to high yield bonds, and (3) increasing allocation to utilities and telecoms.

Description: This paper looks at the problem of valuing and managing the ALM risks associated with insurance liabilities that are too long to be matched by available investments. Two options were explored and the paper concludes by arguing that the Static Control Model leads to more useful ALM strategies for long liabilities.

Description: This presentation is a panel discussion, session number 9PD, from the 2000 Valuation Actuary Symposium, held September 14-15 in Washington, DC. A fundamental assumption in stochastic asset/liability modeling is the underlying economic scenario generator. In this session the panelists discuss various scenario generation techniques, assumptions underlying bond and equity scenario generators, and choosing suitable economic scenario generators for different applications. Discussion from participants is included.

Description: This paper addresses the stochastic modeling for managing asset liability process. We start with developing a jump-diffusion process for evaluating of the liabilities of the insurance company in general. We then formulate the ALM process into a stochastic control problem. With this approach, we present a Bel|man-Dreyfus Fundamental type formula for ALM process in terms of the solution of a system of algebraic equations and partial differential equations.

Description: Presented at May 1986 Spring Meeting. This session discussion is about the purposes, tools and methods available, scenario testing, updating, special issues and problems. This discussion anticipates the development of new Valuation Actuary reserve adequacy opinion requirements.

Description: This panel discussed studies of the risk of loss due to changes in the interest rate environment. It addressed why the C-3 risk is important and how inflation and stability in interest rates can affect the financial soundness of life insurance companies. There was also a discussion of the theoretical work being carried out to calibrate the C-3 risk of variation in interest rates and to what extent the valuation actuary can properly recognize the risk of loss from changes in the interest rate environment within the framework of valuations laws and regulations.

Description: This presentation made up Sessions 1 and 2 at the 1987 Valuation Actuary Symposium. The presenters discuss cash flow analysis in light of the valuation actuary concept. Asset and liability cash flows are looked at under different economic scenarios. Future interest rates, investment and reinvestment strategy are included in the discussion of scenario generation. Stochastic scenarios and the number of scenarios are discussed.

Description: This paper investigates how the concepts of asset-liability matching can be used to shape investment strategy. From Transactions of Society of Actuaries 1980, Vol. 32.

Description: This study aimed to study primarily the impact of market performance on a pension plan’s ability to meet its obligations.

Description: This guide lists literature sources that an actuary can use to gain knowledge on investments and asset/liability management. It can be viewed as a preliminary road map for the actuary seeking direction to enhance his or her knowledge in these areas. The emphasis of this guide is on fixed-income securities.