Використання деривативів в управлінні активами та зобов’язаннями страхових компаній

English

The use of derivatives in asset-liability management of insurance companies

Abstract. Introduction. Asset-Liability Management (ALM) is a crucial aspect of insurance companies' operations aimed at ensuring their financial stability and solvency. However, traditional methods like duration matching (portfolio immunization) often prove not flexible enough in volatile interest rate environments and unstable financial markets. The growing complexity of regulatory requirements, such as Solvency II, pose new challenges for effective ALM. These circumstances necessitate the search for new approaches and tools that would allow insurance companies to better manage their assets and liabilities, reduce risks, and ensure stability. Purpose. The main purpose of this study is to assess the effectiveness of advanced Asset-Liability Management techniques for insurance companies, particularly the use of derivatives to manage duration gaps and mitigate interest rate risks. The paper investigates how these tools can be integrated into existing ALM approaches to ensure better alignment of assets and liabilities and enhance the resilience of insurance companies to changing market conditions. Materials and methods. The materials of this study include: 1) academic works by foreign authors focused on asset-liability management (ALM) within the insurance industry; 2) regulatory documents (namely, Solvency II) which outline the requirements for risk management and financial stability of European insurance companies. In the course of this study, the following scientific methods were utilized: theoretical analysis and synthesis (to evaluate the existing ALM strategies and their effectiveness in managing duration gaps); comparative analysis (to compare traditional ALM techniques with more flexible approaches incorporating derivatives); and the logical generalization method (to formulate conclusions regarding the application of derivative instruments in ALM for insurance companies). Results. The study's findings indicate that the integration of derivatives, such as government bond futures, interest rate swaps, and government bond options, can significantly improve the management of duration gaps and portfolio optimization for insurance companies. The use of these financial instruments allows for a flexible and effective response to changing market conditions, ensuring the stability and solvency of insurance companies. Discussion. Further research can be directed towards a deeper study of the effectiveness of derivatives in the context of risk management in property & casualty insurance companies versus life insurance companies. Modelling performance of specific portfolios of different types of insurers will contribute to improving ALM efficiency.

Keywords: Asset-Liability Management; duration; immunization; insurance; derivatives; interest rate risk; portfolio optimization