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    Day 4 Pres 2 Asset Liability Management FSC Jamaica Angela Beckford

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    sid_1992
    The document discusses the reasons why asset-liability management (ALM) is important for financial regulators and insurance companies. It provides background on past economic crises in Jamaica that resulted from a lack of coordinated ALM practices, including mismatches between long-term illiquid assets and short-term liabilities that led to insolvency for some insurers. The document outlines the current varying ALM practices among insurers and the Financial Services Commission's efforts to develop new ALM regulations to improve risk management and capital adequacy.

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    Day 4 Pres 2 Asset Liability Management FSC Jamaica Angela Beckford

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    sid_1992
    31 views15 pages
    The document discusses the reasons why asset-liability management (ALM) is important for financial regulators and insurance companies. It provides background on past economic crises in Jamaica that resulted from a lack of coordinated ALM practices, including mismatches between long-term illiquid assets and short-term liabilities that led to insolvency for some insurers. The document outlines the current varying ALM practices among insurers and the Financial Services Commission's efforts to develop new ALM regulations to improve risk management and capital adequacy.

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    The document discusses the reasons why asset-liability management (ALM) is important for financial regulators and insurance companies. It provides background on past economic crises in Jamaica that resulted from a lack of coordinated ALM practices, including mismatches between long-term illiquid assets and short-term liabilities that led to insolvency for some insurers. The document outlines the current varying ALM practices among insurers and the Financial Services Commission's efforts to develop new ALM regulations to improve risk management and capital adequacy.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    31 views15 pages

    Day 4 Pres 2 Asset Liability Management FSC Jamaica Angela Beckford

    Uploaded by

    sid_1992
    The document discusses the reasons why asset-liability management (ALM) is important for financial regulators and insurance companies. It provides background on past economic crises in Jamaica that resulted from a lack of coordinated ALM practices, including mismatches between long-term illiquid assets and short-term liabilities that led to insolvency for some insurers. The document outlines the current varying ALM practices among insurers and the Financial Services Commission's efforts to develop new ALM regulations to improve risk management and capital adequacy.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 15

    Asset-Liability

    Management
    – Reasons the FSC is interested

    CAIR/CARTAC/World Bank Conference


    Caribbean Insurance Supervisors Initiative
    June 18, 2009
    St. Georges, Grenada
    Angela Beckford
    Financial Services Commission - Jamaica
    Definition of ALM
     Practice of management so that decisions
    and actions taken with respect to assets
    and liabilities are coordinated (IAIS)

    Asset-Liability Management 2
    ALM is a Process

    Asset-Liability Management 3
    Business Characteristics that
    call for ALM
     Profits mostly on spread
     Cash flows to reinvest
     Liabilities payable on pre-set dates
     Difficult to find assets to match liability flows
     Embedded options
     Investment performance guarantees
     Potential reinsurance settlement time lags
     Claims volatility

    Asset-Liability Management 4
    Benefits of ALM Program
     Promotes identification and control of risks
     Improves capital and liquidity management
     Enhances internal and external
    communication

    Asset-Liability Management 5
    Liabilities - New Insurance
    Products were Introduced
     Investment or lump-sum policies
     A small amount of the premiums towards life insurance,
    with the majority for investment
     Projected to yield rates of return similar to, or higher than
    those offered by commercial banks or other financial
    institutions
     Some offered guarantees of 12% to 24%
     Clients were allowed to make withdrawals with little or no
    penalty
     Income earned on investments not subject to withholding
    tax

    Asset-Liability Management 6
    Assets - Economic Climate of
    the late 1980s to early 1990s
     High inflation rates and relatively low
    interest rates of late 1980s caused
    increases in asset prices
     As way of maximizing nominal returns
    financial institutions broadened asset
    bases to include long-term, illiquid assets
    (real estate and stocks)

    Asset-Liability Management 7
    Change in Economic Conditions
     Currency depreciation and strong money supply
    growth led to high inflation rates (up to 80%) by
    1992
     1993 - a tight monetary policy stance to stabilize
    the exchange rate and inflation
     As real interest rates increased, asset prices fell
     Sluggish GDP growth, which increased the
    incidence of non-performing assets

    Asset-Liability Management 8
    Results of Uncoordinated
    Assets & Liabilities (I)
     Withdrawals and surrenders increased
    significantly
     Clients’ funds were tied up in long term
    investments and poorly performing funds
     Insurers tried to take out loans (at high interest
    rates) or sell more policies, which deepened the
    problem
     Illiquidity led to insolvency

    Asset-Liability Management 9
    Results of Uncoordinated
    Assets & Liabilities (II)
     11 entities were intervened:
    5 Life Insurance Companies
     6 Commercial and Merchant Banks;
     Fiscal cost of support was 40-42% of
    GDP, a significant proportion of which was
    financed by public debt

    Asset-Liability Management 10
    Six Largest Cost of Banking Failures Before 2003 (As a Percentage of GDP)

    60

    50

    40
    Percenatge

    30

    20

    10

    0
    Argentina (1980) Indonesia (1997) Jamaica (1996) Chile (1981) Thailand (1997) Uruguary (1981)

    Argentina (1980) Indonesia (1997) Jamaica (1996) Chile (1981) Thailand (1997) Uruguary (1981)
    Financial Sector Reform
     Recognition of the importance of ALM and
    capital adequacy requirements
     Actuary is required to discuss and
    comment on the insurer’s ALM practices in
    the annual report to the FSC

    Asset-Liability Management 12
    Current ALM Practices of the
    Insurers Vary Considerably…
     Highly developed comprehensive ALM programs
     Limited program as part of Investment Policy
     Doing something, but not structured
     Just getting started
     Some are driven by the group while others are
    leading their group

    Asset-Liability Management 13
    ALM Regulation
     Results of assessment revealed the need
    to go further
     Develop a regulation to which the FSC can
    ensure they are adhering
     Draft circulated for consultation in April
    2009
     www.fscjamaica.org

    Asset-Liability Management 14
    Asset Liability Management

     Thank you,

    Questions?

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