Table Of Content

Asset and Liability Management for Banks and Insurance Companies Series Editor Jacques Janssen Asset and Liability Management for Banks and Insurance Companies Marine Corlosquet-Habart William Gehin Jacques Janssen Raimondo Manca First published 2015 in Great Britain and the United States by ISTE Ltd and Apart from any fair dealing for the purposes of research or private study, permitted under the Copyright, Designs and Patents Act 1988, this publication stored or transmitted, in any form or by any means, with the prior permission or in the case of reprographic reproduction in accordance with the terms and CLA. Enquiries concerning reproduction outside these terms should be sent to undermentioned address: ISTE Ltd John Wiley & Sons, Inc. 27-37 St George’s Road 111 River Street London SW19 4EU Hoboken, NJ 07030 UK USA www.iste.co.uk www.wiley.com © ISTE Ltd 2015 The rights of Marine Corlosquet-Habart, William Gehin, Jacques Janssen and identified as the authors of this work have been asserted by them in accordance Designs and Patents Act 1988. Library of Congress Control Number: 2015942726 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library ISBN 978-1-84821-883-3 Contents INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHAPTER 1. DEFINITION OF ALM IN THE BANKING AND INSURANCE AREAS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2. Brief history of ALM for banks and insurance companies . . . . . . . . 2 1.3. Missions of the ALM department . . . . . . . . . . . . . . . . . . . . . . . 1.3.1. Missions of the ALM department for banks . . . . . . . . . . . . . . 3 1.3.2. Missions of the ALM department for insurance companies . . . . . 5 1.4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHAPTER 2. RISKS STUDIED IN ALM . . . . . . . . . . . . . . . . . . . . . . . . . 2.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2. Risks studied in a bank in the framework of Basel II and III . . . . . . . 2.2.1. Main risks for banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2. From Basel I to Basel III . . . . . . . . . . . . . . . . . . . . . . . . . 2.3. Stress tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.1. What is a stress test? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2. The stress tests of 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4. Risks studied in an insurance company in the framework of Solvency II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4.1. Solvency II in a nutshell . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4.2. Focus on the risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5. Commonalities and differences between banks and insurance companies’ problems . . . . . . . . . . . . . . . . . . . . . . . . 2.5.1. Commonalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5.2. Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.6. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vi Asset and Liability Management for Banks and Insurance Companies CHAPTER 3. DURATIONS (REVISITED) AND SCENARIOS FOR ALM . . . . . . . 27 3.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2. Duration and convexity risk indicators . . . . . . . . . . . . . . . . . . . . 3.3. Scenario on the cash amounts of the flow . . . . . . . . . . . . . . . . . . 3.4. Scenario on the time maturities of the flow . . . . . . . . . . . . . . . . . 3.5. Matching asset and liability . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6. Matching with flow scenarios . . . . . . . . . . . . . . . . . . . . . . . . . 3.7. ALM with the yield curve . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7.1. Yield curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7.2. ALM with the equivalent constant rate . . . . . . . . . . . . . . . . . 3.8. Matching with two rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9. Equity sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9.1. Presentation of the problem . . . . . . . . . . . . . . . . . . . . . . . . 3.9.2. Formalization of the problem . . . . . . . . . . . . . . . . . . . . . . . 3.9.3. Time dynamic of asset and liability flows . . . . . . . . . . . . . . . 3.9.4. Sensitivity of equities and VaR indicator . . . . . . . . . . . . . . . . 3.9.5. Duration of equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9.6. Special case of the aggregated balance sheet . . . . . . . . . . . . . . 3.9.7. A VaR approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10. ALM and management of the bank . . . . . . . . . . . . . . . . . . . . . 3.10.1. Basic principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10.2. ALM and shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.10.3. Stochastic duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.11. Duration of a portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.12. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHAPTER 4. BUILDING AND USE OF AN ALM INTERNAL MODEL IN INSURANCE COMPANIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2. Asset model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1. Equity portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.2. Bond portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.3. Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.4. Central scenario and simulated scenarios . . . . . . . . . . . . . . . . 4.3. Liability model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.1. Model points . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.2. Mathematical reserves and annual policyholder benefits . . . . . . . 87 4.3.3. Annual policyholder benefits and crediting rate . . . . . . . . . . . . 4.3.4. Profit sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.5. Policyholder demography and behavior . . . . . . . . . . . . . . . . . 91 4.3.6. Other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.7. Future new business . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contents vii 4.3.8. Fees and business costs . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4. Structure of an ALM study . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.1. Determinist study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.2. Stochastic study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5. Case study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5.1. Goal of the study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5.2. Business plan and other liability inputs . . . . . . . . . . . . . . . . . 4.5.3. Central scenario and other asset inputs . . . . . . . . . . . . . . . . . 4.5.4. Fee and cost hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5.5. Step-by-step model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5.6. The ALM study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.6. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHAPTER 5. BUILDING AND USE OF ALM INTERNAL MODELS IN BANKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2. Case 1: Reduction of gaps . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.1. Basic numerical data . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.2. Basic ALM indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.3. Scenario for loss reduction . . . . . . . . . . . . . . . . . . . . . . . . 5.3. Case 2: A stochastic internal model . . . . . . . . . . . . . . . . . . . . . 5.3.1. Probability of bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.2. Presentation of the first model (Model I) . . . . . . . . . . . . . . . . 5.3.3. Presentation of the model with correlations (Model Ibis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.4. Presentation of the model with correlations and non-negative values for assets and liabilities (Model II). . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.5. Consequences for ALM . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4. Calibration of the models . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.1. Historical method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.2. Scenario generator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5. Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.1. Model Ibis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5.2. ALM II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6. Key points for building internal models . . . . . . . . . . . . . . . . . . . 5.6.1. How to present an internal model? . . . . . . . . . . . . . . . . . . . . 5.6.2. Validation of the model . . . . . . . . . . . . . . . . . . . . . . . . . . 5.6.3. Partial and global internal models . . . . . . . . . . . . . . . . . . . . 5.7. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . viii Asset and Liability Management for Banks and Insurance Companies CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BIBLIOGRAPHY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . John Wiley & Sons, Inc. or criticism or review, as may only be reproduced, in writing of the publishers, licenses issued by the the publishers at the Raimondo Manca to be with the Copyright, ix 1 1 3 8 9 9 9 9 11 15 15 16 17 17 20 25 25 25 26 27 28 32 34 36 40 43 43 44 46 47 47 48 49 51 52 52 54 58 58 58 66 70 71 73 73 74 74 76 82 83 84 85 87 90 94 96 97 99 99 103 105 105 105 106 107 107 109 114 115 115 115 115 118 119 121 121 122 124 126 131 135 135 139 139 139 142 146 146 147 147 148 149 151 153

Asset and Liability Management for Banks and Insurance Companies PDF

171 Pages·2015·4.844 MB·English

by Corlosquet-Habart, Marine, Gehin, William, Janssen, Jacques, Manca, Raimondo

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Author:	Corlosquet-Habart, Marine; Gehin, William; Janssen, Jacques; Manca, Raimondo
Publication Year:	2015
ISBN:	1848218834
Pages:	171
Language:	English
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