Linking strategic and tactical planning systemsfor asset and liability management

John Mulvey, Chris Madsen and François Morin

Annals of Operations Research, 1999, vol. 85, issue 0, 249-266

Abstract: Total enterprise risk management involves a systematic approach for evaluating/controlling risks within a large firm such as a property‐casualty insurance company. Thebasic idea is to coordinate planning throughout the organization, from traders and underwritersto the CFO, in order to maximize the company's economic surplus at the desiredlevel of enterprise risk. At present, it is difficult to link strategic systems, such as assetallocation, to tactical systems for pricing securities and selecting new products. We proposetwo solutions. First, we develop a “price of risk” for significant decisions possessingcorrelatedfactors. Second, we create a set of dynamic investment categories, called hybrid assets,for use in an asset and liability management framework. We illustrate the concepts via aninsurance planning problem, whereby the goal is to optimize the company's surplus. Copyright Kluwer Academic Publishers 1999

Date: 1999
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DOI: 10.1023/A:1018925912190

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