Once an insurance company has defined their financial objectives, risk tolerances and constraints, this can be set up in the Nexus Risk Platform optimization utility. Unless the portfolio is already risk efficient, substantial value can be added by performing a risk optimization. Insurance companies have been able to add millions to their bottom line results while simultaneously reducing their interest rate risk exposure.
Risk optimization reflects the actual asset and liability cash flows and can be performed on either a risk-free or credit yield curve. Nexus Risk Platform can also be used to perform a risk optimization that incorporates a view on interest rates so that if the view is correct the gain will be maximized for the amount of risk taken.
Recent market volatility has underscored the danger of over-reliance on simple duration strategies to manage interest rate risk. Companies that were well-matched on a duration basis have struggled to explain large impacts resulting from recent interest rate movements.
Nexus Risk Platform is a powerful portfolio management tool to execute sophisticated immunization strategies, manage the multiple dimensions of interest rate risk exposure and measure performance of active strategies that may take a long term view on interest rates.
Multiple systems and decentralized modeling of business cash flows can present serious challenges for companies wanting to aggregate and manage their risks across multiple product lines, business units and even countries.
Nexus Risk Platform easily aggregates and consolidates data from multiple projection sources - whether legacy or state-of-the-art - providing companies with single-platform risk analysis and reporting across product lines, business units and countries.
Nexus Risk Platform can be used to ensure ALM is implemented effectively right at the product design and pricing stage. ALM strategies can be tested using the projected liability cash flows for the new product. A live asset universe can be uploaded and a risk optimization performed to determine the maximum earned rate achievable for a given level of risk.
Recent credit spread volatility has emphasized the need for ALM to be applied beyond risk-free interest rates to encompass credit spreads in analysis, reporting and management.
With IFRS and principles-based approaches on the horizon, companies are devoting more attention to the impact of credit spread fluctuations on even their long-term held-to-maturity investments.
Nexus Risk Platform not only measures a company’s exposure to changes in interest rates but can separately quantify sensitivity to changes in credit spreads. Analyze interest rate risk and credit risk independently using separate risk-free yield curve and credit spread curves, or manage on a combined basis using a swap or credit curve.
Companies are facing demands for more frequent and more comprehensive reporting while coping with limited budgets and scarce resources. Nexus Risk Platform allows companies with limited resources and budgets to do more with less. Users have not only realized substantial reductions in staff time required to measure, monitor and execute ALM - the streamlined process also allows them to get the work done sooner. As a result, they can perform more frequent and more comprehensive risk analysis and reporting, and spend more time focused on analyzing results and developing and executing strategy.
Each busy reporting period, companies need to deliver comprehensive reporting and analysis, but have limited time available to develop them or apply the necessary control cycle to ad-hoc, spreadsheet reports.
Nexus Risk Platform produces the comprehensive ALM reports needed in minutes for the current reporting period and can also readily reproduce any prior period report for any valuation date, product line, and yield curve specified.
Nexus Risk Platform provides companies with a tool to execute asset management within an ALM framework, with a focus on overall financial objectives and actual liability cash flows rather just than a liability benchmark. For companies still needing to work within a traditional asset management approach, Nexus Risk Platform can generate a Minimum Risk Portfolio benchmark to use for performance attribution.
Nexus Risk Platform also performs an ALM attribution analysis to explain cross-period yield curve impacts and provide an actual-to-expected view of results. This is invaluable for understanding the limitations of certain risk metrics in predicting changes or managing risk.