Knowledge Base Articles
Part I: Asset and Liability Management Using LSMC - Introduction to the Framework
In the first part of the ”Asset and Liability Management using LSMC” article series, we outline an ALM framework based on a replicating portfolio approach along with a suitable financial objective. This ALM framework, albeit simplified, is constructed to provide a straightforward replication of the complex interactions between assets and liabilities. Moreover, a brief introduction to the LSMC method used to generate all underlying risk factors is presented.
Part III: Cyber Risk Management, Security Controls and Insurance
In continuation of our discussion of cyber risk, this paper investigates the issues of cyber risk management within financial industry. In particular, we look into the process of determining the optimal size of the investments in cyber security as well as the quantification of the appropriate cyber insurance premiums.
February 2019 News Update
We are excited to present our news selection for February 2019! Although anticipated to be a conventional means of providing investment advice in the longer term, automated financial advice is still an emerging subsector in the global wealth management industry. Some sources anticipate that the expansion and specialisation of such services would bring the developing digital advice providers to their maturity, while the early adopters evaluate the lessons learnt from the implementation of robo-advisers. Meanwhile, the large banks do not rush to engage in the FRTB implementation projects before the local regulators come up with the final version of the new rules. At the data intelligence side, the data scientists deploy artificial intelligence to assess the ESG practices of companies.
End of LIBOR: A Rising Challenge for The Insurers
Driven by the consequences of the global financial crisis in 2008 and the LIBOR scandal in 2012, the world’s financial regulators set off the search for alternative reference rates that could better reflect the underlying market and would be more difficult to manipulate. Since financial institutions use the reference rates to design contracts of various kinds, the impact of this change will be considerable. However, most of the available analysis and other material on this topic describe the challenges of such a transition only for banks, frequently leaving out the insurers who are significantly affected by the change as well. Therefore, it becomes essential to highlight global best practices regarding the preparation for replacing the -IBOR in the insurance industry.
January 2019 News Update
We have gathered the most exciting news in the areas of financial technology and regulatory changes this month. The latest revision of the FRTB framework receives mixed reviews from the industry. The automated financial advice providers around the globe expand to accommodate the demand from new types of customers - from large banks and insurers to self-employed entrepreneurs. The UK's Financial Conduct Authority changes its focus from the charges and costs aspects of MiFID II to implementing new rules around product governance and research within the scope of the same framework. The rapidly evolving AI technology is anticipated to change the accounting profession as it exists presently.
P&L Attribution: Similarities and Differences between FRTB and Solvency II
In this article, we discuss the challenges of implementing the internal model approach under FRTB and Solvency II. In particular, we focus on the P&L Attribution test, which financial institutions have to continuously perform and pass to maintain their eligibility for internal model use. The article outlines the similarities and differences between the two regulatory regimes that require the P&L Attribution test; FRTB for banks and Solvency II for insurance companies.