The strategic asset allocation decision is key for insurance companies. Different firms take different approaches, ranging from a simple mean-variance asset-only optimization to painstakingly testing individual portfolios using a full stochastic asset-liability model. For most companies, however, the aim is to tread the line between these extremes: to have a process which can quickly identify the asset allocation that maximizes reward within the given risk budget. The primary questions to be asked are, which financial metrics are to be included as the “risk” and “reward” measures, and how can the toolset model them?

This new white paper, Incorporating Risk Capital in Strategic Asset Allocation, looks beyond the simple asset-return metric and examines two other key indicators, economic value and solvency capital—how they can be modelled and how optimizing for these measures will influence a portfolio.

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