By Marine Corlosquet-Habart, William Gehin, Jacques Janssen, Raimondo Manca
This e-book introduces ALM within the context of banks and insurance firms. even if this method has a middle of basic frameworks, types could range among banks and insurance firms due to the assorted dangers and pursuits concerned. The authors evaluate and distinction those methodologies to attract parallels among the commonalities and divergences of those companies and thereby supply a deeper realizing of ALM in general.
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Additional resources for Asset and Liability Management for Banks and Insurance Companies
Solvency II has a much wider scope because it reflects the new risk management practices to define the required capital and manage risks. In fact, the aim of Solvency II project is to review the prudential legislation for insurance and reinsurance undertakings in the EU. It introduces new, harmonized EU-wide insurance regulatory rules. More precisely, the key objectives of Solvency II are the following: – better protecting consumers and rebuilding trust in the financial system; – ensuring a high, effective and consistent level of regulation and supervision by taking into account the varying interests of all Member States and the different nature of financial institutions; – giving a greater harmonization and coherent application of rules for financial institutions and markets across the EU; – promoting a coordinated EU supervisory response.
6. Conclusion This chapter has highlighted the fact that risk management is nowadays of paramount importance, whether it be in a bank or in an insurance company. These entities are fully aware of this, since the Basel II, III and Solvency II directives ask them to quantify and control the risks inherent to their business. This chapter described the different risks modules defined by Basel and Solvency directives. They concern, at the same time, about the assets and liabilities, and are thus in direct link with ALM risks.
When this last situation is correct, the annual interest rate for a maturity T will be represented by i(T). 1, the graph of this function in a plane T-i is called the yield curve (YC). T). 49] 44 Asset and Liability Management for Banks and Insurance Companies is called the YC at time t for the considered financial market. Up to now, we have considered the special case of a flat YC for which for all t and T : R (t , T ) = i. 1. – To obtain a scenario for the YC movements, we can select a new YC or also used stochastic models generating YC in function of the parameters of the considered models such as, for example, the OrnsteirnUhlenebeck-Vasicek and Cox-Ingersoll-Roll models (see, for example [JAN 09]).