Asset-Liability Optimisation under Solvency II
We propose risk / return efficient allocations under economic ALM and Solvency II considerations. Typically, following investment objectives can be pursued:
- Increased return potential at unchanged risk and SCR level
- Reduction of risk and SCR at increased return potential
- SCR reduction at unchanged risk and return level
Key to our approach is to consider economic risks of assets and liabilities first and including regulatory constraints in a second stage. By this we ensure sound allocations from an economic ALM perspective. Our models include following aspects:
- market risk including interest rate sensitivities of liabilities
- insurance risk
- SCR minimisation framework
- Special features: inclusion of extreme market and insurance scenarios, modelling instruments convexity
Our ALM / Solvency II solutions range from asset class analysis to optimised portfolio construction. Please contact us for further details.
Solvency II Index Optimisation
Index replication at minimal SCR:
- Minimising SCR for given investment universe and constraints on risk and allocations (e.g. sectors, currencies, asset classes)
- Applications: Fixed income indices, equity indices with Solvency II optimised overlay strategies
Special Topic: Convertible Bond Portfolio Optimisation
- Convertible bonds unify fixed income and equity like characteristics.
- From a Solvency II perspective, convertible bonds’ convexity (change of equity sensitivity at changing underlying equity price) strongly reduces SCR. More importantly, for Solvency II SCR calculation the convexity is measured within a +/- 39% or +/- 49% range and not in the vicinity (as it is typically done in the financial industry)
- Deep in the money convertible bonds are particularly interesting from a Solvency II capital efficiency perspective
- Our research on this topic can be found here.