We offer a range of tools to help Life insurance companies — including both traditional Life insurance and annuity underwriters — maximize the spread between the income they earn on their investments and the crediting rates on their products. The main objective as we work with these companies is to increase yield without taking on unsustainable risk.
Understanding your assets and liabilities
As with any new relationship, AAM begins its partnership with Life companies with a thorough review of both sides of the balance sheet. Asset/liability modeling is a critical tool in this preliminary analysis, giving us a good sense of how much risk your company is taking on to meet its liabilities. We also offer peer analysis, which provides a snapshot of how you compare on key ratios like liabilities to capital. In addition, we offer an array of support services. Some, such as investment forecasting, Other Than Temporarily Impaired (OTTI) and investment policy reviews, are appropriate to all insurance companies. Others, including cash flow testing and crediting rating reviews, are specific to the Life insurance business.
A trading approach attuned to your liability duration
We understand that many Life companies have long-duration liabilities, and we customize our investment approach accordingly. Our portfolio managers evaluate all potential trades in the context of how they would impact your asset valuation reserve and interest maintenance reserve. As a result, they buy bonds with a view toward longer holding periods and evaluate all trades in the light of your longer-term objectives.
Investments designed for life insurers
Once we understand your company’s liability structure, we may recommend targeted duration strategies specifically designed to match your needs. We may also tailor other strategies including core bond and private placements so that they deliver the stable, predictable, risk-adjusted yields that you require to meet your liability obligations. For instance, we typically avoid callable bonds, which may have high yields when purchased, but frequently are called and must be reinvested in lower-yielding issues. We can also work with you consultatively, on an ongoing basis, to set appropriate crediting rates for your products, given the yields available in a given market.
Insight and services to support your strategies
Your portfolio team can also work with you on issues specific to your portfolio and holdings — and will help you prepare for meetings with independent ratings agencies, such as A.M. Best.