Actuarial Notes

IAA Risk Book: Asset Liability Management Techniques and Practices for Insurance Companies

By Charles Gilbert · International Actuarial Association · 2025 · CFE101-120-25

Study guide: Exam CFE-101

A chapter of the International Actuarial Association's Risk Book, developed and approved by the IAA Insurance Regulation Committee (version 2.0, approved 29 July 2025, written by Charles Gilbert). It gives practical insights into asset liability management (ALM) techniques and practices for insurance companies. It covers the objectives of the ALM function, the sources of risk in its scope, governance and framework, the measurement of risk exposures and the execution of ALM strategies.

On the syllabus

  • Exam CFE-101 — CFE101-120-25: IAA Risk Book, Asset Liability Management; outcome 3.2e.

Introducing the IAA Risk Book

1 Executive Summary

2 Introduction

  • 2.1 Definition of ALM
  • 2.2 Relative Risk
  • 2.3 Key Elements of ALM: Measurement and Management of Risk
  • 2.4 Influence of Regulatory Regime on ALM Practice
  • 2.5 Unique Considerations and Challenges for Insurance Companies in a Low-Interest Rate Environment

3 Objectives for the ALM Function

  • 3.1 Strategic Decision-Making Framework
  • 3.2 Multiple Bases

4 Scope

  • 4.1 Sources of Risk
  • 4.2 Market Risk
  • 4.3 Currency Risk

5 Governance and Framework

  • 5.1 Board of Directors
  • 5.2 ALM Policy
  • 5.3 Asset Management within an ALM Framework

6 Measurement of Risk Exposures

  • 6.1 Interest Rate Risk Metrics
  • 6.2 Scenario Testing
  • 6.3 Stochastic Analysis
  • 6.4 Decision Support

7 Execution of ALM Strategies

  • 7.1 Segmentation
  • 7.2 Dedication and Horizon Matching
  • 7.3 Immunization
  • 7.4 Portfolio Replication
  • 7.5 Carve-Out Strategy
  • 7.6 Interest Rate Swap Overlay
  • 7.7 Reinsurance
  • 7.8 Dynamic Hedging
  • 7.9 Taking Market Views
  • 7.10 Risk Optimization

Appendix A Interest Rate Risk Metrics and Analytics

Appendix B The Greeks

Appendix C Surplus Management Philosophy

Appendix D Evolution of ALM Practices

Sources