Consulting
Specific service offerings include:
- ALM Strategies to Achieve Financial Objectives
- Benchmarking Reviews of ALM / ERM Based on Observed Industry Best Practices
- Investment Strategies and Strategic Asset Allocation
- GMXB Product Reviews
- Dynamic Hedging and Management of Equity-based Guarantee Products
- ALM / ERM Framework Implementation
- Portfolio Optimization
- Economic Capital and Risk Budgeting
Many companies worldwide do an adequate job of executing risk management at a tactical level to eliminate or minimize their risk. In today's competitive landscape, it is becoming more and more apparent that this approach to managing risk is not good enough and can mean the difference between gaining competitive advantage and lost opportunity.
As the recent global market crisis has shown, companies succeed or fail based on the decisions they make. All too often these decisions - to eliminate or minimize profitable risk, or to take risks outside of the stated risk appetite - lack clear focus.
We believe risk management should be the front and centre focus of all strategic decisions enabling companies to achieve their financial goals subject to their risk tolerances and constraints. By keeping a clear focus on risk at all times and making informed risk decisions, companies can maximize stakeholder value.
Nexus Risk Management helps companies implement risk frameworks and formulate innovative strategies to gain competitive advantage.
Consulting
For insurance companies and pension plans, the traditional asset management model can fail to achieve the overall financial objectives even when the investment objectives have been met. By executing asset management within a risk framework the true risk exposure can be reduced and substantial value can be added.
Under the traditional model insurance companies are required to translate the overall financial objectives as best they can into investment objectives then specify a liability benchmark with appropriate risk targets that approximate the actual liabilities. Oftentimes the risk limits are specified using metrics that do not fully describe the actual risk exposure. Using this model, even if an asset manager beats the benchmark and achieves the investment objectives, this does not ensure that the financial objectives will be achieved. Insurance companies can simultaneously realize an increase in portfolio yield and lower financial results due to higher actuarial reserves and/or economic capital required.
Executing asset management within a risk framework uses the actual liability cash flows, eliminating the reliance on a proxy for the liabilities. This ensures that the actual interest rate risk exposure can be effectively managed and reserves and economic capital minimized. By executing the asset management function within a risk framework, companies can add significant value and show immediate improvement to the bottom line. This is accomplished by focusing on the actual overall financial objectives, understanding the interrelationship between increasing total return and decreasing risk exposure, and by managing against actual liability cash flows. ALM strategies are formulated to achieve the financial objectives, then proprietary algorithms are used to optimize the portfolio (i.e. maximize value and minimize risk) on a default free basis and realize significant immediate gains and decrease risk exposure.
The key to formulating and executing effective strategies is to having an in-depth understanding of both the assets and liabilities and how they interrelate. Trying to specify objectives for each side of the balance sheet separately will not necessarily ensure that the overall financial objectives are achieved.
Through strategic partnerships we provide integrated asset management and ALM services for a competitive fee. By managing the assets directly against the liability cash flows and focusing on the financial objectives of our clients we add significant value over the traditional asset management approach. Our services allow our clients to free up resources devoted to ALM while ensuring that ALM best practices are being performed.
In addition to all asset management services, we provide the following as part of our service:
- Implement a sound ALM framework integrated within Enterprise Risk Management
- Formulate and execute ALM strategies to achieve the financial objectives within risk tolerances and constraints
- Perform all ALM services including measuring, monitoring and reporting of risk exposure
- Perform a risk optimization on a default free basis
- Determine strategic asset allocation
- Provide in-house and Board level training as desired