In this article, we discuss the effects of different management decision rules on asset liability management of German Life Insurance companies and the optimization of these rules. We use a simulation based model according to dynamic simultaneous ALM.
It turns out that management decision rules have a strong influence on the outcome of dynamic ALM in comparison to static projections. Choosing suitable management decision rules can make an asset liability model significantly more realistic and adaptable to the individual situations of different insurers. Furthermore, it can dramatically reduce an insurance company’s risk by determining which behavior makes sense, from a risk management point of view.
Moreover, the simultaneous optimization of management decision rules within dynamic asset liability management improves the achievements even more, since it leads to advanced parameter values that yield enhanced results.