Asset Allocation

AQS begins with the portfolio blueprint whether for life-health or property-casualty insurers. This blueprint, developed in the context of the insurer’s liabilities, assures sufficient cash flow liquidity to meet obligations without undue reliance on market liquidity.

With the financial liquidity crisis of 2009 only recent history, it is important to recall that the stability and liquidity presumptions embedded in conventional portfolio management theories like duration management fell short; in turn, forcing liquidation in an unfavorable environment in spite of a theoretical match.

Strategic Asset Allocation

It is to this point that strategic asset allocation be performed in the context of dynamic cash flow immunization against a broad opportunity set of prospective assets with varied cash flow structures. A blueprint incorporating these structures identifies the risk-nature of modeled liabilities absent simplifying assumptions. Absent reliance on these assumptions, a dynamic cash flow match across a range of economic and interest rate scenarios evolves into a portfolio blueprint, specific as to the component securities and their structure. It is this capability of our PALM/PERM systems that identified a more robust solution for a major domestic carrier outlined in a case study.

Given a preliminary view of the optimal portfolio structure, the systems – which run in seconds, not hours, can be constrained

Tactical Asset Allocation

With a blueprint itemizing the characteristics of securities (down to CUSIP granularity), tactical asset allocation begins. A key difference in the AQS process at this point is that the tactical allocation is not static – instead it is an opportunistic allocation based on market opportunities that behave within the strategic blueprint, client investment policy and risk tolerance.

The AQS model focuses on securities that ‘fit’ in the context of funding with emphasis on areas of opportunity at the moment of transaction.