Insurers and asset managers are ramping up their commitment to stress testing, scenario modelling and asset-liability management (ALM), as market complexity and volatility push risk management further up the agenda, a study has shown.
A global study by Ortec Finance, a provider of technology and solutions for risk and return management, has shown that nearly 79% plan to increase both their budget and resources for these functions over the next two years. Almost a quarter 24% anticipate a dramatic rise in investment, indicating an industry-wide pivot toward more sophisticated risk modelling.
The survey analysed responses from investment managers collectively overseeing $10.48 trillion in assets under management. It found that while ALM is clearly a growing focus, according to the findings, 9% handle the entire process in-house. 68% firms outsource some parts of their ALM work, while 23% rely entirely on external providers.
While 45% of respondents focus primarily on asset risk and 37% on liability risk, 8% currently assess the combined risks of both sides of the balance sheet—an integrated approach that the researchers shared is critical for robust financial planning.
Hamish Bailey, managing director UK and head of insurance and investment at Ortec Finance, commented: “Scenario modelling, stress testing and ALM seem to be an area of focus for insurers and investment managers with many planning to increase investment over the next two years,” he said. “This survey reflects what we are seeing in our client base, with a combination of increased market volatility and continued investment in complex asset classes emphasising the need for robust risk management approaches.”
