EDHEC-Risk Institute presented the results of research carried out with the support of Russell Investments that has led to the development of risk management strategies that allow European insurance companies to keep a reasonable capital requirement while providing attractive products to policyholders.
Putting in place these dynamic risk management strategies implies implementing partial internal models which capture insurance companies’ specific characteristics and in particular the benefits of these allocation strategies. Those benefits are several: responsiveness to changes in market environment, better exposure to the returns of the equity markets, and respect of Solvency II constraints.
The benchmarks’ framework is public, totally transparent, well documented and grounded in a rules-based approach with solid, objective academic foundations. These features turn the benchmarks into an independent external reference that can be used as the bare bones for the development of partial internal models by insurance companies.
Commenting on these new benchmarks, Professor Noël Amenc, Director of EDHEC-Risk Institute, said, “Since the EDHEC-Risk Solvency II Benchmarks in cooperation with Russell Investments are based on dynamic allocation of sources of risk (equity and cash) and a rules-based approach, they constitute an easily-replicable independent external reference, which facilitates the implementation of a partial internal model to assess equity risk, and its internal and external control. Moreover, the capital freed up from the optimisation of equity risk can be reallocated to cover other risks, such as sovereign debt.”
Pascal Duval, CEO, EMEA, Russell Investments, added “Research has always been part of the DNA of Russell Investments, so we are delighted to support this unique research-based solution to a decisive concern for European insurance companies, in a time of low-growth cycle: how to invest in equities with limited capital consumption within the Solvency II framework. It ties in very well with our dynamic asset allocation solutions developed for institutional investors”.
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