Important Points for IC 99 - Asset Management Exam
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In general insurance companies invest more in bonds to ensure secured returns. But the duration of those bonds which mostly depend on the type of bond. Since investments in bonds are long term in nature life insurers often investing in 10-30 year durations bonds, but non-life insurers afford not to invest to that extent in long-term bonds in consideration of their nature and term of policy, which are mostly annual contracts. Property casualty insurers, because of the nature of their business and tax situation, tend to invest in tax free bonds more than life insurers. Investments in excess of liabilities can be invested in slightly more risky investments such as equities.
All above aspects are considered in the process and technique of ALM. ALM provides the scope and techniques of various technical analysis and fundamental analysis for determining the optimal mix of assets, balancing the expected yield, the risk, the timing / duration constraints, etc. All these analysis in the subsequent chapters provide proper guidance and inputs for proper allocation of investable funds in various financial assets. In ALM such analysis which is known as Strategic Asset Allocation (SAA) ensures maximum returns on investment as well as solvency and liquidity, which are the prime concerns of every insurance regulator for protection of the interests of the policyholders.
Stress tests enable insurers to study the quantitative (and not qualitative) impact of different scenarios and its effect on the solvency of an insurer.
The ALM policy of the insurance company has to be approved by the Board of the Insurance company.
Interest rate risk, equity risk, currency risk and related credit risk are classified as market risks.
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