20636 - ALM FOR LIFE INSURANCE AND LONG TERM INVESTING

While there are no formal prerequisites to attend the course, it is recommended to possess a basic knowledge of descriptive and inferential statistics (e.g. correlation, variance-covariance matrices , main statistical distributions,...), investments (bond duration and convexity, capital asset pricing model,...), derivatives (characteristics of forward contracts, options, swaps, ...), risk management in banking, portfolio construction.

When assessing insurance companies, individuals without expertise often overlook the financial significance of the business (with over 8 trillion in total assets as of the end of 2022 in the Euro area) and place too much importance on the biometric/actuarial aspect. Financial risks comprise the bulk of an insurance company's balance sheet risks, comprising almost 60% of the regulatory capital requirement, whereas insurance risks are a smaller proportion. Based on these considerations, the purpose of the course is to help students: comprehend the significance of the insurance industry in the financial market; clarify why insurance companies are the most complicated entities in this field, familiarise themselves with the business model employed in the insurance industry; gain knowledge of the quantitative models utilised by insurance companies for risk management and value estimation, acknowledge the value of Soft Skills in Quantitative Positions, offer promising and motivating career opportunities.

The course focuses on investment topics and prioritizes practical application, emphasizing the operational implications of each subject. Through roleplay simulations, classroom exercises, case studies, and lectures from professionals in the financial industry, the course offers a strong link between theory and practice.

The main topics to be addressed are:

• the evolution of the modern investment industry and how it relates to interest rates
• the most relevant approaches to investing: passive investing, active investing, unconstrained investing, and LDI (Liability Driven Investing)
• the relevant regulation from an investments perspective
• how to model a long-term investor's goals and constraints using a stochastic approach
• from theory to practice:
  • defining
  • presenting to the board of directors
  • implementing
  • supervising, and 
  • control a long-term investment strategy

By the end of the course, students will have gained a comprehensive understanding of the vital role played by the insurance industry in the financial market. They will also be able to elucidate why insurance companies are among the most complex entities in this field, familiarize themselves with the business model utilized in the insurance industry, acquire knowledge of the quantitative models employed by insurance companies for risk managementation, as well as recognize the importance of soft skills in quantitative positions. and value estim

By the end of the course, students will have the ability to utilize a stochastic approach to model a long-term investor's goals and constraints. Additionally, they will acquire the skills necessary to define, present, implement, supervise, and control a long-term investment strategy that can be presented to the board of directors.

• Lezioni frontali
• Testimonianze (in aula o a distanza)
• Esercitazioni (esercizi, banche dati, software etc.)
• Analisi casi studio / Incidents guidati (tradizionali, multimediali)
• Lavori/Assignment di gruppo
• Altre attivita' d'aula interattive on campus/online (role playing, business game, simulation, online forum, instant polls)

During our program, we invite senior managers such as chief investment officers and heads of asset and liability management from companies, pension funds, and other long-term investors to give guest lectures. Additionally, we analyse equity analysts' reports on listed life insurance companies for our case studies. Our PC simulations give students practical exercises in defining investment strategies and monitoring risks.

In previous editions of this course, we were fortunate to have the opportunity to welcome several distinguished experts as guest speakers, including:

• Apollo Global Management lecture on "The Relevance of the Alternative Investments for the insurance industry"
• BlackRock lectures on "The relevance of the Alternative Investments for the insurance industry"
• Generali's lectures on "Insurance ALM and SAA: challenges and solutions"

Again, in previous editions of this course, students were required to present their SAA proposal to a simulated Board of Directors comprising senior executives from different organisations, such as Generali and BlackRock (held off-site at their respective headquarters).

This course has group assignments that require teamwork and can earn up to 3 points each.

The final exam consists of one open-ended question and can earn up to 30 points.

Students are permitted to use any tools, such as notes, readings, internet research, or AI, to complete the tasks.

The objective of both the group assignments and final exam is to evaluate the student's capacity to recognise and understand fundamental knowledge and concepts related to the course's intended learning outcomes, as well as their ability to "connect the dots" to solve the assigned tasks.

The assignments will be assessed based on the student's ability to concisely summarise and effectively communicate the results of their work, as well as their public speaking skills.

Students who do not attend class will only be evaluated through the final written exam, which consists of three open-ended questions.

The purpose of this exam is to measure the student's understanding of fundamental knowledge and concepts related to the course's intended learning outcomes.

The teaching materials consist of notes taken during class, slides created by the instructors and guest speakers, and parts of selected readings distributed throughout the course.

The teaching materials are composed of:

• A. BELTRATTI, G. CORVINO, Why are insurance companies different? The limits of convergence among financial institutions, in Geneva Papers on Risk and Insurance: Issues and Practice, volume 33, Issue 3, July 2008.

• G. CORVINO, Asset allocation and private markets: the need for a cash management, April 2020, https://www.researchgate.net/publication/340886960_Asset_allocation_and_private_markets_the_need_for_a_cash_management_strategy 

• CFO FORUM, Market Consistent Embedded Value Principles, April 2016 – first 20 pages

• ERNST & YOUNG, Fair value measurement, July 2019 – from page 108 to 110

• G. CORVINO, With Profit Products, June 2017

• MILLIMAN, Solvency II in a nutshell, November 2014

• MORGAN STANLEY, Insurance Primer, several years – first 16 pages

• UBS, Insurance primer, January 2009 – first 22 pages

• Slides created by the instructors