Designing a Strategic Asset Allocation from a Top-down and Bottom-up Approach
An international insurance group with a mix of life and non-life business across Europe and Asia looking to identify a strategic asset allocation approach that supports their needs.
Determine whether a top-down or bottom-up strategic asset allocation is more effective while being mindful of the various constraints and preferences the client has mentioned.
- Design an asset allocation strategy for a large insurance entity that would effectively work both at group level and across their numerous business units.
- Run Strategic Asset allocation (SAA) for each business unit, including considerations on asset-liability risk and Solvency capital consumption.
- Build a bottom-up SAA, consistent with the SAA at the business-unit level.
- Run a top-down SAA for the whole insurance group
We leveraged our extensive analytics platform to design a simulation-based optimisation model that calculates a group efficient frontier in a bottom-up fashion from the individual efficient frontiers of each business unit.
We then computed separately the efficient frontier of the group, assuming full control of each unit (top down approach).
We showed that for our client’s problem, both methods can lead to the same results, hence validating the bottom-up approach and allowing us to introduce additional aspects to the bottom-up model that would have been intractable to solve for with the heavier top-down model.
This bespoke SAA analysis was an opportunity for us to better understand our client’s objectives and assist them in repositioning their portfolio in the most efficient way. Our Strategic Asset Allocation study helped the client quantify the trade-offs between business unit and group objectives and informed both their asset allocation strategy and their governance process.
After several months of close collaboration between our advisory team and the client’s investment, SAA, capital, and risk teams, we built a model of the client’s balance sheet, objectives, and constraints. We leveraged our deep understanding of insurance balance sheet management and our extensive modelling platform to deliver a bespoke analysis addressing the client’s questions.
The SAA study will inform alterations to the client’s portfolio allocation. We will continue advising the client on portfolio transition and reinvestment to help achieve their desired investment objectives.
The cited case studies represent examples of how we have partnered with various institutional clients on a broad range of services and offerings. The experiences outlined in the case studies may not be representative of the experience of other clients. The case studies have not been selected based on portfolio performance and are not indicative of future performance or success. This is not a testimonial for Goldman Sachs Asset Management’s advisory services.
