ALM team of the year, LV=
For a relatively small insurer, LV= has a complex balance sheet and is exposed to many of the risks faced by larger firms.
Tackling big problems with a small number of people has required a real collaborative effort, and InsuranceERM's judges recognised those efforts with the ALM team of the year award. In particular, they praise the way the team has developed a deep understanding of the Solvency II balance sheet, and demonstrated tangible benefits to the business.
The judges were also impressed with the complexity of challenges the LV= team has successfully navigated in the midst of the sale of its general insurance business and Brexit.
Among the team's achievements has been an interest rate hedging strategy, designed to stabilise the transitional measures on technical provisions (TMTP) surplus, including movements in solvency capital requirement (SCR). The strategy was enabled by development of full modelling of interest rate exposures.
As interest rates fell in 2019, the interest rate swaps that hedge movements in SCR delivered more than £50m of surplus benefits.
Refinements to modelling to give a clearer and more detailed understanding of exposures, which in LV='s case are both gilt and swap-based, has allowed a more intelligent use of internal offsets and reduced reliance on derivatives, releasing liquidity and reducing drag on the balance sheet.
The ALM team also implemented a number of asset share short strategies in its with-profits funds, to better match smoothed claim payments and reduce market exposures to future management charges. This allowed a further liquidity release and reduction in SCR.
The ALM team was also integral to two pieces of work on the matching adjustment (MA) portfolio.
The first was the submission of an updated matching adjustment (MA) application in 2019 to enable the use of US$ corporate bonds and a cross-currency swap. LV= believes this initiative represents an opportunity for significant yield pick-up and surplus improvements in 2020.
The second was the first surplus extraction from the MA portfolio and adjust the holdings and asset allocations. This improved the group's liquidity, reduced SCR and improve interest rate hedging efficiencies.
Edward Rayson, lead actuarial manager for ALM at LV=, says he is lucky to work with "a fantastic team" where everyone pulls together. He says his managerial style involves giving people opportunities and "letting them run with it".
Reviewing the achievements of the past year, Rayson says 2019 involved spending a lot of time protecting capital and stabilising the balance sheet.
He says: "I'm hopeful that 2020 can be more about driving value and driving returns through appropriate risk management."
Finally, his outlook for the insurance market this year can be summed up in two words: "cautious optimism".