ALM-PF · Modelling and software prototyping for asset-liability management applied to pension funds
FP6 — Marie Curie Actions (Human Resources and Mobility)
- Duration
- 2006-11-01 → 2008-04-30
- EU contribution
- €145,448
- Participants
- 2
- Scheme
- TOK
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Results in brief
Final Activity Report Summary - ALM-PF (Modelling and software prototyping for asset-liability management applied to pension funds)
The ALM-PF project has had a twofold result: * the exchange of different approaches and methodologies between the academic and the industrial environment: * the deep study and the development of modern stochastic models applied to the financial market. The main work activities, to reach the project objective and to pursue the expected results, have been: * The study of the new Italian pension systems law (Legislative decree N. 252 05/12/2005) and the analysis of the Italian insurance regulation (Legislative decree N. 209 07/09/2005). * Analysis of the Italian actuarial standard formulas and the existing and necessary low duties. * Development of the first deterministic real world models both for the accumulation than for the annuity period. * Gap analysis between the ALM-PF project purpose and the Swedish project previously developed by ITWM. * Study of the Solvency II impact into the ALM-PF models and into the Italian insurance and pension funds environment. * Deep analysis about the 'Solvency capital requirement' (SCR) standard formula, the 'Risk margin' (RM) and the 'Cost of capital' (CoC) evaluation. * Study of the main solutions to analyse the future assets class (market value vs book value). * Development of the real world stochastic model. * Project partner identification and data collection. * Data analysis and data normalisation. * Identification of the best software solution to fulfill the market request "R-Project" and the project purpose. * Software and DB engineering. * Testing activities and outcomes analysis. * Outcomes sharing and gap analysis. * Models improvement and models engineering. * Final testing activities and outcomes certification. The related results were double: * Information and skills sharing: the main TOK-IAP project purpose is to share and develop resources between the industrial and the scientific environment to reach new and modern solutions. This goal was the ALM-PF milestone and both Infracom and FRAUNHOFER Institute have tried to pursue this aim. For this reason we can say that the continuous relationship between the ITWM researches and the Infracom employees has generated a real added value and this process was the base for a new internal research mechanism and a new and considerable international mental approach. During the project development we were able to merge the functional (from Infracom) and the mathematical and theoretical (from ITWM) approaches, this was a great result that has generated a new kind of skills, precious for future activities, collaborations and developments. * Project outcomes: the project results and outcomes were exciting, not only for the ALM-PF objectives achieved but also for the new and future possibilities to apply the developed models in different environments. The new EU insurance regulations and the financial earthquake generated by the subprime phenomenon have affected the project development, for this reason we have decided to modify our approach to build a modern and relevant models typology considering also the future market request. Our studies, works and outcomes were shared with the scientific and actuarial environment, and also with some market players, to have a real feed-back about our efforts and project goals.
Data: CORDIS, © European Union
Project objective
The topic of the project is the in-depth analysis and investigation of Asset and Liability Management (ALM) models in the Pension Funds sector, in order to make them a widespread and reliable tool, as ALM is a recognized essential strategy designed to correctly manage these type of financial products. The project purpose is twofold: to strengthen the ALM models proficiency addressed principally to Pension funds as well as to build a software solution prototype, which permits to process and administer premium strategies. In this perspective, a new frontier has opened, furthermore influenced by social changes occurring through the European territory. Strong welfare policies adopted by many EU Members and the continuous raising trend of the average age of people have both led to the rapid growth of Pension funds, which embodies the vanguard of a huge but inexorable metamorphosis of the pension planning in the majority of European countries. The rapid growth of this particular financial market segment has propelled a sudden besides quite unforeseen crisis in several countries, referable to the fact that investments management strategies have frequently been exclusively driven by past or expected returns on assets, with no allow for an adequate liabilities control. Thereby liabilities become the leading pension plans management benchmark, whereas the solitary research for returns might drive to the incapacity for balancing those obligations. EU Solvency II rules will considerably influence the risk management of insurance companies and pension funds. Its objective is similar to the Basel II system for banks - to implement a solvency model that is better adapted to the true risks and liabilities of pension systems and enables supervisors to protect policyholders' interests as effectively as possible. A further objective is the increase in risk transparency for the supervisors as well as for the public in the EU.
Original text from CORDIS.
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Data: CORDIS, © European Union