Insight
Life insurance capital regimes in Asia, 4th edition
This report compares and contrasts life insurance RBC regimes across selected Asian markets and highlights potential implications from future regulatory changes in the industry.
Rebalancing strategies play an important role in ensuring asset portfolio continues to meet its stated objectives in volatile markets. In designing a rebalancing strategy, there needs to delicate balance between managing transaction costs and accurately implementing the objectives.
In this paper, we explore the concept of using a whole-of-portfolio risk-based measure to determine when rebalancing trades are triggered, as well as a transaction cost optimised approach when determining the instruments to trade. To illustrate the impact of this, we then compared the concept against more conventional rebalancing strategies on a typical dynamic hedging program for a Variable Annuity guarantee over backtested and simulated real-world scenarios.
We found that by limiting rebalancing trades to only when the whole-of-portfolio risk is material, we can significantly reduce the expected transaction costs whilst achieving a similar level of hedge effectiveness.
Insight
This report compares and contrasts life insurance RBC regimes across selected Asian markets and highlights potential implications from future regulatory changes in the industry.