To support our clients’ Enterprise Risk Management (ERM) initiatives, AAM provides dynamic Asset/Liability Management modeling (ALM) as an extension of our investment management service. AAM licenses the ADVISE™ system from DFA Capital Management, a leading provider of ERM software solutions for the insurance industry.

The industry climate is more challenging than ever for insurance companies. Life, Health, and Property & Casualty insurers face common obstacles such as regulatory compliance, low interest rates, terrorism risks, disaster recovery and global competition, while navigating risks specific to their lines of business such as bird flu, disintermediation, health care reform and the frequency and intensity of natural catastrophes.

Insurance companies are in the business of risk management so these risks and challenges cannot and should not be entirely avoided. Rather, the insurance company needs to incorporate greater analysis and modeling to quantify the individual, aggregate and correlative risks across all business segments of the enterprise to ensure that there is appropriate economic rewards for each risk factor. Thus, an effective ERM process maximizes the economic value of the enterprise by evaluating the risk/reward tradeoff in all areas of the business.

Recognizing the benefits that can be gained through ERM analysis, the rating agencies are now placing special emphasis on an insurer’s overall ERM policies and procedures. Most insurers are able to identify risk across their enterprise, but many companies lack the infrastructure to statistically quantify these risks.