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...within enterprise risk constraints, pricing assumptions are changed despite competitive pressures.
Increases in insurance industry competition have resulted in tighter premium margins and greater product optionalities. As a result, the importance of asset management within the industry also has skyrocketed: greater product optionality makes liability modeling far more complex than a decade ago, and tighter premium margins result in smaller asset reserves to cover instances when actuarial assumptions were too aggressive. Under pressure for profitability and facing the low-interest-rate environment of the past decade, many insurers have migrated to riskier assets in search of higher yields.
In the current environment, integrating liabilities into asset management is critical to risk optimization. Leaders within the industry have begun to recognize the greater risks in their asset-management practices, and select firms have been active in integrating product-liability considerations into their investment strategies, and reasonable, risk-adjusted return projections into product design.
To illuminate the current state of insurance investment management and to bring a disciplined approach to an understudied field, Patpatia & Associates undertook a comprehensive survey of insurers to identify the market trends and evolution toward integrating asset-liability management within general-account asset-management strategies.
We...
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