Ardea Unveils New Insurance Portfolio Optimisation Tool
Ardea Unveils New Insurance Portfolio Optimisation Tool
A new tool designed exclusively for improving insurance portfolios has been released by fixed-income expert Ardea Investment Management. It tackles the challenging asset allocation issue that insurers face.
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The statement claims that including the capital charge in the portfolio optimization process results in a challenging multi-objective optimization problem that cannot be resolved using conventional financial models.
The three factors of market risk, return, and regulatory capital, as well as liabilities, have been optimized for Ardea’s new tool. This, in Arde’s opinion, is a step up from the conventional 2-dimensional methods up to this point.
The tool also has the ability to determine the capital charge under various market regimes, scenario modelling, and gauging the impact of draft changes to regulatory requirements such as the proposed climate charges under Solvency II, the company noted
Ardea Unveils New Insurance Portfolio Optimisation Tool
Dr Laura Ryan, Head of Research, Ardea Investment Management, commented: “The asset allocation problem for insurers is an incredibly difficult one. Not only do they have to match their assets with their liabilities, but they also have to generate a return for their shareholders. And then on top of this, the regulatory capital requirements need to be considered.
“The recent market conditions, with low yields and low credit spreads, meant insurers were faced with investing in assets that attracted a higher capital charge. In the current market environment with rising yields and higher market volatility, insurers need to be able to adjust their asset allocation in a more dynamic fashion.
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The tool allows 3D optimization which will support insurance companies who are looking for return-seeking assets.”
Stephen Clout, CEO and co-founder, Ardea Investment Management, added: “The tool was developed to form a central part of our service offering to insurance clients and has been utilized by our clients for manager selection purposes and to understand how different asset classes may impact a portfolio.”
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The proprietary algorithm behind the tool was developed in-house by Ardea’s quantitative research team in conjunction with researchers from the University of Sydney and combines various engineering and machine learning techniques.
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