Asset Liability Management for Insurance Industry

Module 1: Overview of Asset-Liability Management (ALM)

• Introduction

• Key Terms

• ALM Defined

• Benefits of ALM

• Limitations of ALM

• On and Off-Balance Sheet Risks

Practical session: Discuss ALM context for candidates’ organization.

Applicable Regulations in the Insurance Industry

• Introduction to Insurance Regulation

• Regulatory Measures

• Capital Regulation

• Future Advances

• Solvency II requirements

Composition of the Asset-Liability Portfolio for Insurers

• Asset Portfolio

• Liability Portfolio

• Balance Sheet Optimization

• Ratios

Practical session: Prepare a visual representation of the Asset-Liability portfolio for an insurer.

Module 2: Overview of the ALM Model Components (Pillar I to Pillar III)

• Pillar I: ALM Organisation

• Pillar II: ALM Management Process and Measurement Tools

• Pillar III: ALM Information Systems

Pillar I: ALM Organisation

• Level of top management involvement

• Governance structures and decision making (Asset-Liability Management Committee (ALCO))

• ALM Role-players

• Link between ALM and Enterprise Risk Management

• Link between ALM and Capital Management

Practical session: Develop an ALCO terms of reference.

Module 3: Pillar II: ALM Process and Measurement Tools

• ALM Process

• Measurement Tools:

  • Yield Curve Analysis

  • Interest Gap Analysis

  • Simulation and Scenario Analysis

  • Duration Analysis

  • Other Tools

Practical session: Simulation and scenario analysis exercise.

Pillar III: ALM Information Systems

• Management Information Systems

• Data Quality

• Reporting

Practical session: List ALM reports and identify key data sets.

Hedge Accounting

• Hedged items and hedging instruments – IAS 39

• Recap of IAS 39 requirements and issues

• Cash flow hedges and Fair value hedges

• Hedges of a Net Investment in a foreign operation

• IFRS 9, General Hedge Accounting

• New hedge accounting model and changes from IAS 39 approach

• Risk management objective and hedge strategy

• Hedge effectiveness requirements

• Hedge ratio – measurement, adjustments, rebalancing

• Discontinuance of hedge accounting

Module 4: Implementation and Interpretation of Relevant IFRS Standards (i.e., IFRS 9, IFRS 10, and IFRS 11)

IFRS 9

• Classification of financial instruments

• Treatment of financial assets

• Treatment of financial asset equity instruments

• Treatment of financial liabilities

IFRS 10

• Control, power, variable returns

• Substantive and protective rights

• Reviewing Shareholders’ Agreements and identifying salient points

• De facto control: Dispersion of shareholdings

• Decision makers: Principal or agent?

• Definition of Investment Entity – 3 requirements

• Business purpose and exit strategy

• Investment entities as subsidiaries and parents

• Amendments to IFRS 10, IFRS 12, and IAS 28 – investment entities and consolidation exception

IFRS 11

• Joint Arrangements – Joint Ventures or Joint Operations

• Consideration of separate vehicles

• Joint Control and link with IFRS 10

• Accounting for Joint Ventures – equity accounting

• IAS 28 revised – equity accounting

• Accounting for Joint Operations

• Equity method in separate financial statements, IAS 27 amendment

Module 5: Other IFRS Changes and Exposure Drafts

• IFRS 14, Regulatory Deferral Accounts

• IAS 16 & IAS 38 – amendments to depreciation and amortisation

• IAS 19 amendments – discount rate and regional market issue

• IAS 19 treatment of employee contributions

• IFRS 3 and IAS 40 amendments – businesses and investment properties

• IAS 24 Amendments – Related Party disclosures – key management personnel service

• IAS 34, Interim Financial Reporting – disclosure

• IAS 36 Amendments – recoverable amount disclosures

• Amendments to IAS 16 & IAS 41, issued June 2014, accounting for bearer plants

• IFRIC 21 Levies