ALM work: matching duration does not finish the job
Asset-liability management studies the assets and liabilities together. The decision can concern investment strategy, hedging, liquidity or the resilience of surplus under scenarios.
A simple first-order illustration
Assets and liabilities each have market value 100. Asset modified duration is 7; liability modified duration is 10. Under a small parallel +1 percentage-point yield move, the duration approximation gives assets near 93 and liabilities near 90. Approximate surplus therefore rises by 3.
This example ignores convexity, option exercise, credit changes and non-parallel curve movement. It demonstrates why matching market values alone does not match interest-rate exposure.
The analyst’s output
Useful exhibits include cash-flow gaps by period, key-rate exposures, scenarios for surplus and liquidity needs, and hedge sensitivities. Show assumptions about policyholder behaviour and whether assets can actually be sold when needed.
A portfolio may be duration-matched while still having a large near-term cash shortage. A derivative hedge may reduce market sensitivity while creating collateral calls. Those are separate decisions requiring separate checks.
The working rhythm
Monitoring and sensitivity runs recur. A strategic asset allocation review, a new hedging programme or a model redesign is project work. Clarify whether the role is within insurance risk, investment management or treasury: the analysis can look similar while the decision authority differs.
Reading sources
ActNet editorial guide · October 1, 2026 · Original illustrative examples.