Actuarial Notes

Exam CP-351

CP 351 – Asset Liability Management is an exam of the Society of Actuaries' Fellowship (FSA) pathway. Its syllabus covers the Nov 2026/Mar 2027/Jul 2027 sittings.

Learning Objectives

Objectives of Asset Liability Management (5–20%) The candidate will understand the objectives of Asset Liability Management (ALM).

  1. Explain the principles of Asset Liability Management
  2. Understand the lessons learned from ALM failures
  3. Demonstrate an understanding of various ALM risks
  4. Describe how different pension and insurance contracts generate embedded options

Readings:

  • CP351-100-26: IAA Risk Book - Asset Liability Management (1a)
  • CP351-101-25: ALM for Life, Annuities, and Pensions (sections 1-2) (1a)
  • CP351-102-25: Case Study on General American Life Insurance Company (1b)
  • Financial Enterprise Risk Management, Sweeting, P., 2nd Edition, 2017 (1b)
    • Ch. 20: Case Studies (sections 1, 2, 4 & 6)
  • What Can Insurers and Pension Funds Learn from Bank Failures (1b)
  • CP351-115-26: IAA Risk Book - ERM Insights from Failures and Near Failures (sections 3.2, 3.3, 3.4 & 3.10 only) (1b)
  • Financial Enterprise Risk Management, Sweeting, P., 2nd Edition, 2017 (1c)
    • Ch. 8: Risk Identification
  • Quantitative Enterprise Risk Management, Hardy, Mary and Saunders, David, 2022 (1c)
    • Ch. 2: Risk Taxonomy
  • CP351-104-25: Life Insurance Risk, Capital, and ALM in the Age of Uncertainty - Paper 1 (1c)
    • Risk Inventory, Taxonomy, Calibration
  • CP351-101-25: ALM for Life, Annuities, and Pensions (section 3) (1d)
  • CP351-105-25: Chapter 16 of Asset/Liability Management of Financial Institutions, Tilman 2003 (1d)
  • CP351-106-25: Liability Driven Investment Explained Chapters 1-2 (1d)

Measuring Risks from Assets and Liabilities (25–45%) The candidate will understand how to measure risks from assets and liabilities.

  1. Demonstrate an understanding of various risk identification tools
  2. Evaluate a company’s or a portfolio’s exposures to various risks
  3. Understand measures of regulatory capital adequacy for life insurance companies in various jurisdictions
  4. Evaluate the difficulties of investing for long-tail liabilities (i.e. beyond 30 years) such as inflation and longevity

Readings:

  • CP351-101-25: ALM for Life, Annuities, and Pensions (section 4) (2a)
  • CP351-107-25: Key Rate Durations: Measures of Interest Rate Risk (2a)
  • Fixed Income Securities: Tools for Today’s Markets, Tuckman, Bruce and Serrat, Angel, 4th Edition, 2022 (2a)
    • Ch. 4: DV01, Duration, and Convexity
    • Ch. 5: Key-Rate, Partial, and Forward-Bucket ‘01s and Durations
  • Understanding the Connection Between Real-World and Risk-Neutral Generators, SOA Research, Aug 2022, sections 1-5 (2a)
    • Companion Excel-based Tool
  • CP351-108-25: Life Insurance Risk, Capital, and Asset-Liability Management in the Age of Uncertainty - Paper 2 – Risk Models and Monitoring, and Management Implications (2b)
  • Liquidity Risk, AAA, Feb 2024 (excluding Appendix I) (2b)
  • Quantitative Enterprise Risk Management, Hardy, Mary and Saunders, David, 2022 (2b)
    • Ch. 8: Market Risk Models
  • Fixed Income Securities: Tools for Today’s Markets, Tuckman, Bruce and Serrat, Angel, 4th Edition, 2022 (2b)
    • Ch. 6: Regression Hedging and Principal Component Analysis
  • Regulatory Capital Adequacy for Life Insurance Companies, SOA Research, Jul 2023 (2c)
  • CP351-110-25: New Frontiers: Backing Long-term Insurance Liabilities with Non-fixed-income Assets (2d)
  • CP351-101-25: ALM for Life, Annuities, and Pensions (section 6) (2d)

Tools and Strategies to Manage ALM Risks (40–60%) The candidate will understand tools and strategies to manage ALM risks.

  1. Develop and critique asset allocation strategies appropriate to underlying liability profiles such as pension plans and long-tail insurance liabilities
  2. Demonstrate an understanding of and apply tools and techniques for measuring and managing interest rate risk in an ALM context
  3. Apply stress testing and scenario analysis to assess extreme ALM events
  4. Understand and evaluate model and parameter risks
  5. Explain and implement techniques used to mitigate market risks
  6. Understand interest rate derivatives and use them to mitigate interest rate risk
  7. Explain different methods available for transferring risk

Readings:

  • CP351-101-25: ALM for Life, Annuities, and Pensions (section 5) (3a, 3e, 3f)
  • CP351-106-25: Liability Driven Investment Explained, Ch. 3-7 (3a)
  • Handbook of Asset and Liability Management, Volume 2, Zenios, Stavros, and Ziemba, William, 2007 (3b)
    • Ch. 13: Stochastic Programming Models for Strategic and Tactical Asset Allocation - A Study from Norwegian Life Insurance
  • Quantitative Enterprise Risk Management, Hardy, Mary and Saunders, David, 2022 (3b)
    • Ch. 6: Copulas
  • CP351-112-25: The Devil is in the Tails: Actuarial Mathematics and the Subprime Mortgage Crisis (3b)
  • CP351-113-25: Chapter 4 of ALM for Banks and Insurance Companies, Habart (excluding 4.3.6) (3b, 3c, 3d)
  • Handbook of Asset and Liability Management, Volume 2, Zenios, Stavros, and Ziemba, William, 2007 (3b)
    • Ch. 18: A Scenario Approach to ALM
  • Quantitative Enterprise Risk Management, Hardy, Mary and Saunders, David, 2022 (3c)
    • Ch. 7: Stress Testing
  • Quantitative Enterprise Risk Management, Hardy, Mary and Saunders, David, 2022
    • Ch. 14: Model Risk and Governance (3d)
    • Ch. 15: Risk mitigation using options and derivatives (3e)
  • Fixed Income Securities, Veronesi, P., 2010 (3f)
    • Ch. 5: Forwards and Swaps
    • Ch. 6: Futures and Options
  • Quantitative Enterprise Risk Management, Hardy, Mary and Saunders, David, 2022 (3g)
    • Ch. 16: Risk Transfer

Source Material

Source Material

  • CP351-100-26: IAA Risk Book - Asset Liability Management
    • Outcomes 1a
  • CP351-101-25: ALM for Life, Annuities, and Pensions (sections 1-2)
    • Outcomes 1a
    • Outcomes 1d
    • Outcomes 2a
    • Outcomes 2d
    • Outcomes 3a, 3e, 3f
  • CP351-102-25: Case Study on General American Life Insurance Company
    • Outcomes 1b
  • Financial Enterprise Risk Management, Sweeting, P., 2nd Edition, 2017
    • Ch. 20: Case Studies (sections 1, 2, 4 & 6) (1b)
    • Ch. 8: Risk Identification (1c)
  • What Can Insurers and Pension Funds Learn from Bank Failures
    • Outcomes 1b
  • CP351-115-26: IAA Risk Book - ERM Insights from Failures and Near Failures (sections 3.2, 3.3, 3.4 & 3.10 only)
    • Outcomes 1b
  • Quantitative Enterprise Risk Management, Hardy, Mary and Saunders, David, 2022
    • Ch. 2: Risk Taxonomy (1c)
    • Ch. 8: Market Risk Models (2b)
    • Ch. 6: Copulas (3b)
    • Ch. 7: Stress Testing (3c)
    • Ch. 14: Model Risk and Governance (3d)
    • Ch. 15: Risk mitigation using options and derivatives (3e)
    • Ch. 16: Risk Transfer (3g)
  • CP351-104-25: Life Insurance Risk, Capital, and ALM in the Age of Uncertainty - Paper 1
    • Risk Inventory, Taxonomy, Calibration (1c)
  • CP351-105-25: Chapter 16 of Asset/Liability Management of Financial Institutions, Tilman 2003
    • Outcomes 1d
  • CP351-106-25: Liability Driven Investment Explained Chapters 1-2
    • Outcomes 1d
  • CP351-107-25: Key Rate Durations: Measures of Interest Rate Risk
    • Outcomes 2a
  • Fixed Income Securities: Tools for Today’s Markets, Tuckman, Bruce and Serrat, Angel, 4th Edition, 2022
    • Ch. 4: DV01, Duration, and Convexity (2a)
    • Ch. 5: Key-Rate, Partial, and Forward-Bucket ‘01s and Durations (2a)
    • Ch. 6: Regression Hedging and Principal Component Analysis (2b)
  • Understanding the Connection Between Real-World and Risk-Neutral Generators, SOA Research, Aug 2022, sections 1-5
    • Companion Excel-based Tool (2a)
  • CP351-108-25: Life Insurance Risk, Capital, and Asset-Liability Management in the Age of Uncertainty - Paper 2 – Risk Models and Monitoring, and Management Implications
    • Outcomes 2b
  • Liquidity Risk, AAA, Feb 2024 (excluding Appendix I)
    • Outcomes 2b
  • Regulatory Capital Adequacy for Life Insurance Companies, SOA Research, Jul 2023
    • Outcomes 2c
  • CP351-110-25: New Frontiers: Backing Long-term Insurance Liabilities with Non-fixed-income Assets
    • Outcomes 2d
  • CP351-106-25: Liability Driven Investment Explained, Ch. 3-7
    • Outcomes 3a
  • Handbook of Asset and Liability Management, Volume 2, Zenios, Stavros, and Ziemba, William, 2007
    • Ch. 13: Stochastic Programming Models for Strategic and Tactical Asset Allocation - A Study from Norwegian Life Insurance (3b)
    • Ch. 18: A Scenario Approach to ALM (3b)
  • CP351-112-25: The Devil is in the Tails: Actuarial Mathematics and the Subprime Mortgage Crisis
    • Outcomes 3b
  • CP351-113-25: Chapter 4 of ALM for Banks and Insurance Companies, Habart (excluding 4.3.6)
    • Outcomes 3b, 3c, 3d
  • Fixed Income Securities, Veronesi, P., 2010
    • Ch. 5: Forwards and Swaps (3f)
    • Ch. 6: Futures and Options (3f)