asset-liability-management

name

asset-liability-management

description

Guides asset-liability management (ALM)—matching asset and liability cash flows and risks; interest rate risk (duration, convexity, key rate duration); surplus and risk appetite; liability-driven investment (LDI), immunization, and hedging (rates, inflation, FX); insurer, pension, and bank ALM; stress testing; ALM policy and ALCO reporting; capital metrics at high level—not trade execution, security selection alone, pension plan design, actuarial reserving, or assumption governance alone. Use when the user mentions asset liability management, ALM, duration gap, interest rate risk ALM, liability driven investing, immunization portfolio, ALCO, surplus at risk, key rate duration, ALM policy, or match assets and liabilities—not pensions (pension-retirement-funds), actuarial models (actuary), assumptions (assumption-setting), P&C (property-casualty-insurance), life/health products (life-health-insurance), equity research (financial-analyst), or actuarial consulting (actuarial-consulting).

Asset-Liability Management (ALM)

When to Use

• Frame ALM objectives: cash-flow matching, surplus protection, return within risk appetite, regulatory capital efficiency
• Analyze interest rate risk: duration, convexity, key rate duration, parallel and non-parallel shocks
• Design liability-driven investment (LDI), immunization, and hedge programs (rates, inflation, FX)
• Quantify duration gap, surplus sensitivity, and surplus-at-risk concepts for ALCO materials
• Support insurer, pension, and bank ALM contexts with institution-appropriate metrics
• Build stress and scenario sets for ALM (rates, spreads, equity, longevity, credit)
• Draft or review ALM policy, risk limits, and ALCO reporting packs (high level)
• Connect ALM to capital, solvency, and regulatory metrics without substituting appointed actuary or risk sign-off
• Explain reinvestment, prepayment, and optionality impacts on asset–liability profiles

When NOT to Use

• Pension plan design, ERISA funding, PBGC, or DB/DC benefit formulas as primary topic → pension-retirement-funds
• Actuarial pricing, reserving, IBNR triangles, mortality table construction, or statutory opinions → actuary
• Assumption governance, assumption packs, and change-control workflows without ALM portfolio lens → assumption-setting
• P&C underwriting, claims, or line-of-business education without ALM balance-sheet focus → property-casualty-insurance
• Life/health product features, distribution, or claims operations without ALM framing → life-health-insurance
• Security selection, issuer research, or equity valuation as primary deliverable → financial-analyst (if installed)
• Actuarial consulting engagement scoping, SOW, or due diligence program management → actuarial-consulting
• Bank intraday liquidity crisis operations, LCR/NSFR runbooks, or treasury payment ops (unless ALM rate-risk context only)
• Trade execution, order management, or portfolio implementation mechanics without ALM risk framing

Related skills

Need	Skill
DB/DC pensions, funding policy, benefit design, de-risking structures	pension-retirement-funds
Pricing, reserving, triangles, experience studies, capital overview	actuary
Assumption documentation, governance, and change control	assumption-setting
P&C lines, underwriting, claims, cat context	property-casualty-insurance
Life, health, annuity product and benefit context	life-health-insurance
Corporate FP&A, investor metrics, security research	financial-analyst (if installed)
Actuarial engagement scoping, SOW, due diligence	actuarial-consulting
IFRS 17 / insurance accounting presentation (coordinate)	ifrs (if installed)
Enterprise risk registers without ALM metrics	security-risk-analyst (if installed)

Core Workflows

1. Engagement scoping

Before analysis:

1. Institution type — Insurer (life/P&C), pension fund/trust, bank ALM desk, asset manager LDI mandate
2. Balance sheet — Economic, regulatory, accounting, or funding basis for assets and liabilities
3. Horizon — Short-term liquidity vs long-term solvency; run-off vs going-concern
4. Decision — Hedge design, IPS/ALM policy, ALCO pack, stress test, capital planning input
5. Material risks — Rates, credit/spreads, equity, inflation, longevity, FX, liquidity, basis
6. Governance — ALCO charter, limits, model inventory, independent validation requirements

See references/alm_scope_and_principles.md.

2. Interest rate risk and duration

1. Define valuation basis and discount curve(s) for liabilities and assets
2. Compute or interpret effective duration, modified duration, DV01, and convexity
3. Extend to key rate duration and partial durations for non-parallel shocks
4. Quantify duration gap and surplus sensitivity to rate moves
5. Flag embedded options (calls, prepay, guarantees) that break linear duration
6. Coordinate liability cash-flow shapes with actuary or pension-retirement-funds when needed

See references/interest_rate_risk_and_duration.md.

3. Liability-driven investing and hedging

1. State LDI objective: minimize surplus volatility, maximize hedge ratio, or cash-flow match
2. Map liability cash flows (timing, indexation, options) to asset segments
3. Select hedge instruments: government bonds, swaps, futures, options, inflation-linked
4. Design immunization or contingent immunization rules and triggers
5. Address reinvestment risk, curve risk, and basis risk between hedge and liability
6. Separate strategic asset allocation from overlay and dynamic de-risking glide paths

See references/liability_driven_investing.md.

4. Insurance and pension ALM

1. Identify regime-specific metrics (e.g., surplus, PVFP, economic capital, funded ratio)
2. For insurers: relate ALM to guarantees, asset adequacy, and market risk capital (overview)
3. For pensions: link duration, glide paths, and de-risking to funding and accounting bases
4. For banks: distinguish ALM (IRRBB, EVE/NII) from liquidity risk management
5. Coordinate longevity, lapse, and morbidity with actuarial owners—not duplicate liability models

See references/insurance_and_pension_alm.md.

5. Stress testing and governance

1. Define scenario set: historical, hypothetical, regulatory, and reverse stress
2. Shock rates, spreads, equity, credit, inflation, and longevity consistently
3. Report surplus, capital, and limit breaches with clear attribution
4. Align with ALM policy limits, risk appetite, and escalation paths
5. Document model risk, data lineage, and ALCO decision log

See references/stress_scenarios_and_governance.md.

6. ALM reporting and metrics

1. Build ALCO dashboard: surplus, duration gap, hedge ratio, key sensitivities
2. Include bridges (market moves, assumption changes, flows, rebalancing)
3. Summarize forward-looking metrics: surplus-at-risk, earnings-at-risk (institution-specific)
4. Tie to capital and regulatory ratios at overview—escalate filings to qualified roles
5. State limitations and basis in every exhibit footnote

See references/alm_reporting_and_metrics.md.

Key metrics (ALM)

Metric	Typical use
Effective / modified duration	Interest rate sensitivity of assets, liabilities, surplus
DV01 / PV01	Dollar change per 1bp parallel shift
Key rate duration	Non-parallel yield curve risk
Convexity	Second-order rate sensitivity; material for large moves
Duration gap	Asset duration − liability duration (definition varies by basis)
Funded ratio / surplus ratio	Assets ÷ liabilities or economic surplus measure
Hedge ratio	Risk covered by hedges ÷ measured exposure
Surplus-at-risk (SaR)	Tail loss on surplus over horizon (method-specific)
Net interest income sensitivity	Bank ALM earnings exposure
Economic value of equity (EVE)	Bank balance-sheet value sensitivity (overview)

Always state measurement basis, curve, and rebalancing assumptions.

Data requests (starter checklist)

When the user has not supplied data, ask for:

1. Valuation date and reporting bases (economic, regulatory, accounting, funding)
2. Liability cash-flow projection or summary profile (duration, key rates, inflation linkage)
3. Asset holdings with classification (government, credit, alternatives, derivatives)
4. Existing hedge book (notionals, maturities, counterparties, collateral)
5. ALM policy and risk limits; prior ALCO materials
6. Prior stress results and capital model outputs (overview)

Deliverable standards

Deliverable	Minimum content
ALM diagnostic	Objectives, gap analysis, top risks, measurement basis
Duration / KRD report	Definitions, curves, asset/liability/surplus sensitivities
LDI / hedge proposal	Instruments, hedge ratio, basis risks, implementation phases
Stress test summary	Scenarios, surplus/capital impacts, limit breaches, actions
ALCO pack	Dashboard, bridges, decisions needed, governance items
ALM policy outline	Objectives, limits, roles, review cadence, model standards

Always state uncertainty and limitations. Do not present outputs as investment advice, actuarial opinion, regulatory filing, or legal guidance without qualified human review.

When to load references

• Scope and principles → references/alm_scope_and_principles.md
• Interest rate risk and duration → references/interest_rate_risk_and_duration.md
• LDI, immunization, hedging → references/liability_driven_investing.md
• Insurance and pension ALM → references/insurance_and_pension_alm.md
• Stress, scenarios, governance → references/stress_scenarios_and_governance.md
• Reporting and metrics → references/alm_reporting_and_metrics.md