ALM and BEL

The functionalities of the ALM module make it possible to conduct an integrated analysis of the assets and liabilities of the life and non-life business.

The quantification of mismatching in terms of amounts and maturities with respect to the policy portfolio completes the analysis framework available to investment decisions makers.

In order to facilitate sensitivity analyses, the following hypotheses can be formulated regarding a forecast: investment strategy, assumptions on rate curves, exogenous liquidity management, credit risk scenarios, dividend forecasts, spread assumptions, forward price scenarios and insurance policy forecasts. These hypotheses can be saved in a dedicated archive and recovered, when necessary, to iterate the forecast calculations, with possible modification of some of the hypotheses formulated previously.
 

Asset side:

Analysis of values and perspective flows with highly detailed data, down to the single holding. Projections are carried out on the same data reference database used for management and administrative processes.

Liability side:

It is possible to integrate data of the policy portfolios into Sofia and calculate the related flows (reserves, premiums and expenses for the various reasons such as maturities, redemptions and claims) by defining standard policy models with homogeneous characteristics (rate, duration, anti-duration, mortality tables, etc).

The ALM module can be used for forecasting purposes, limiting the analysis to portfolios of financial assets or to the policy portfolios of segregated funds.
It is the ideal tool to calculate the foreseeable returns of segregated funds, in line with the provisions of the IVASS regulation.

A Stochastic ALM module is available, based on the Hull-White model for the bond market and the Black-Scholes model for the equity market. The module allows you to launch simulations on a large number of scenarios in order to measure your portfolio's response to particular market conditions.

The global results of a simulation and the detail of each scenario are also presented with interactive graphs.

This module allows the definition of information relating to expenses, payments, and reinsurance treaties, so as to allow a calculation of the Best Estimate of Liabilities (BEL) consistent with the requirements of the Solvency II regulation.
In particular, it is possible to group tariffs through homogeneous risks (HRG), evaluate the management, collection and acquisition costs of policies, enrich tariff information through redemption and variation curves of expenses and manage the reinsurance market through different types of treaties.

With this in mind, the ALM module is integrated into the calculation engine of the SCR module, which allows the calculation of the Market Risk including the absorption capacity of technical provisions and the Life Underwriting Risk.

The module allows you to carry out simulations of the performance of the securities portfolio at future dates, according to different scenario hypotheses and on different accounting levels.

The introduction of IFRS 9 and IFRS 17 Principles required a consistent and integrated representation of the different metrics, in particular with regard to the specificities of IFRS 9 financial statements as for instance the calculation of OCI and ECL at a future date.

To carry out the calculation of the CSM for policies that fall under the VFA and to apply the OCI option (mirroring), attribution of the Fair Value Return and Income to P&L according to IFRS 9 to the individual Segregated funds is also required, as well as an estimate of prospective overcoverage.
The module allows you to respond to these needs by leveraging maximum information detail for financial investments, and the ability of the ALM module to manage liability data in both simplified and complete form.

The module allows the construction of multi-scenario sensitivity analysis based on the combinations of different sets of hypotheses applied to multiple analysis axes such as rate, dividend, credit risk, and asset allocation scenarios.
For each set of hypotheses, the module allows you to carry out a “multi-GAAP” asset projection, i.e. in a coherent manner according to multiple accounting logics. The operations defined from a Segregated funds perspective to achieve a given target return are therefore automatically also evaluated from a local and IFRS financial statement perspective.

As part of the IFRS 9 projection, Sofia offers the possibility to calculate the movement of the OCI reserve at future dates on the basis of the theoretical prices calculated by the fair price engine, as well as to estimate the value of the prospective ECL to be used for valuations.
The close correlation between the forecasts on Segregated Funds and the IFRS level also allows an attribution of prospective IFRS income and prospective Fair Value Return to single Segregated funds, as well as estimating the amount of overcoverage.