Neuberger Berman, a private employee-owned asset management company, now recommends the use of the “Sharpe Solvency Ratio” to its risk-constrained clients, such as insurance companies. This new risk indicator, based on a concept derived from the classic Sharpe ratio, integrates the already existing range of prudential risk measures into the analysis of the strategic asset allocation process and its optimization.<\/p>\n
The insurance industry is facing a challenging investment environment. Thirty years ago, government bonds provided enough returns to back long-term guarantees. To maintain book yield, many insurers are shrinking the risk-free asset allocations in their investment portfolios in favor of growing allocations to alternatives. Against this background, a well-designed strategic asset allocation framework could help companies navigate risk and improve investment efficiency. <\/p>\n
We show that the risk measure used to optimize an SAA has a substantial impact on the output, and believe that an SAA assessed with a range of risk measures is likely to exhibit superior characteristics and improved resilience against a wider range of outcomes, relative to one assessed from a narrower perspective. With that in mind, we introduce the \u201cSolvency Sharpe Ratio\u201d as a new risk measure for insurers\u2019 SAA optimizations. In addition to the commonly used surplus volatility, solvency capital requirement (SCR) and tail risk measures, Neuberger Berman introduces a new risk measure for insurers: the \u201cSolvency Sharpe Ratio\u201d calculated by dividing surplus return by solvency ratio volatility. <\/p>\n
Neuberger Berman’s Insurance Analytics and Insurance Solutions teams have demonstrated in a white paper that the use of this indicator offers several advantages:
\nThis measure is intuitive for all insurance company stakeholders, and show that it tends to justify a less risk-averse and more long-term-oriented SAA than other, commonly used risk measures. we show that a Solvency Sharpe Ratio optimization would result in an SAA that reduces short-term volatility and aims for better long-term performance We argue that the Solvency Sharpe Ratio encourages insurance asset allocators to focus more on diversified growth than on short-term capital consumption not caused by the insurer\u2019s own business activities.<\/p>\n
Matthew Malloy, Global Head of Insurance Solutions said: \u201cThe Solvency Sharpe Ratio is a useful addition to the set of risk measures an insurer can use when they are considering SAAs from multiple perspectives.\u201d<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" This new risk indicator, based on a concept derived from the classic Sharpe ratio, integrates the already existing range of prudential risk measures into the analysis of the strategic asset allocation process and its optimization.<\/p>\n","protected":false},"author":20,"featured_media":89843,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1481],"tags":[1809,1655,1657,1968,1651,1437,1724,2091],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/89845"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/20"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=89845"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/89845\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/89843"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=89845"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=89845"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=89845"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}