COMPANY
Industry Background
Since the late 80s, insurance companies have been
increasingly offering sophisticated and complex investment products
linked with mortalities in order to compete with investment products
offered by retail banks and the mutual funds business. Although
these products have taken the guise of equity linked annuities,
segregated funds, variable annuities, unit linked products, with
profits products and guaranteed investment certificates, these can
be very loosely classified as equity-based guarantees. In offering
such investment products, insurance companies have been forced to
step beyond their traditional comfort zone of taking on actuarial
risks to accept risks that now combined both capital market and
actuarial risks.
The demand for these products combined with the
scrutiny from rating agencies and analysts relating to how writers
of these risks are managing them and heavy regulatory requirements
for companies not doing anything to manage their risks has forced
many writers to more seriously manage their risks. As a consequence,
writers of this risk have to resort to the following myriad of risk-management
strategies:
- Do nothing ("run naked")
- Reinsure the risks with what one can find
- Acquire long-term over-the-counter customized options
- Dynamically hedge the risk
Given the consequences of doing nothing and unavailability
of reinsurance, the only viable option presently open to an insurer
is to do some sort of hedging using a combination of the above strategies.
To do this, companies must be able to assess, quantify, monitor
and manage risks periodically. The implication of this requirement
is the need for a good powerful, illustrative, interactive technology
(i.e. systems, models, know-hows) that can help a writer look at
the business holistically.
ASI History
Although
ASI was created in 2000, through its predecessors, the professionals
at ASI have been providing risk-management advice to insurance companies
since the late 90s. As a matter of fact, they are widely regarded
as pioneers in implementing hedging strategies for insurance companies
writing Variable Annuity products. Furthermore, the delta hedging
strategy, which is now commonly used by many insurance companies
to hedge their VA related risks, was pioneered and implemented by
the principals of ASI in 1999. In addition to consulting, the principals
of ASI have also been involved in actively managing the risks associated
with these guarantees. Since the implementation of the first delta
hedging program in 1999, the principals of ASI have managed at least
USD 100 billion in account value and consulted on at least twice
the amount.
Current State of Affairs at ASI
ASI is a boutique consulting firm with clients in
Asia, Europe and North America, that is primarily focused on helping
insurance companies with issues relating to the risk-management
of equity and interest rate guarantees. Unlike many consulting companies
which try to be an expert on ALL matters, ASI believes that true
expertise can only be cultivated by years of dedication to intimately
understand the field of your specialization while constantly re-inventing
and fine-tuning one's approach to better solve the problems in your
field. As a consequence, ASI has remained focused on the know-how
relating to developing and implementing cost-effective and cost-efficient
hedging programs to better manage risks associated with equity and
interest-rate based guarantees.
Since the risks associated with
these types of guarantees tends to span across many disciplines
like
- financial market risks modeling
- hedge strategy(ies) modeling
- capital markets trading
- derivatives markets trading
- portfolio management
- mortality/lapse risks modeling
- policy-holder behavior modeling
- financial reporting
- regulatory reporting
- information technology
- product/retail distribution
it is difficult for any group of professionals to
be experts in ALL these disciplines simultaneously. As a consequence,
ASI prides itself in being experts on
- financial market risks modeling
- hedge strategy(ies) modeling
- capital markets trading
- derivatives markets trading
- portfolio management
choosing to partner companies who have the expertise
in the other disciplines so as to bring to the client a true all-encompassing
value based on a collection of experts.
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