R.V. Kuhns & Associates, Inc. - Asset/Liability Study

By modeling a pension or endowment portfolio in actuarial software, we are able to test asset mixes for their ability to satisfy the client's goals and cash flow needs or constraints. We simulate various asset growth rates based on the expected return and standard deviation of asset classes. Projected interest and inflation rate changes demonstrate the growth potential of liabilities.

The data from an actuarial valuation report is modeled including the following information: Benefit formulas, interest rates, inflation rates, demographics and actuarial assumptions on mortality rates, withdrawal rates, disability rates and retirement rates. The asset classes are then entered with their capital market assumptions, i.e. expected return, standard deviation and correlations. Several efficient asset mixes are tested, as well as the current asset mix. Additionally, the correlation of these assets is taken into account with the factors that affect liability growth. Primarily, this includes the correlation of the asset classes with interest rates and inflation rates. The pension plan is then modeled several hundred times. In doing so, the capital market assumptions are maintained, including the correlation of the assets with the liabilities. The result displays the performance of the pension plan under a wide range of market conditions. Finally, we can analyze the results of the projections, such as the probability of remaining funded and the potential range of future contributions. Each portfolio is then analyzed for its ability to satisfy the goals and constraints of the client, such as a desired growth in funded ratio while minimizing the probability of required contributions.

The product of an Asset/Liability study is the identification of investment portfolios that are most likely to meet an institution's unique expected future cash outflows or spending needs while minimizing the risk that those needs will not be met.


		Asset/Liability Study By modeling a pension or endowment portfolio in actuarial software, we are able to test asset mixes for their ability to satisfy the client's goals and cash flow needs or constraints. We simulate various asset growth rates based on the expected return and standard deviation of asset classes. Projected interest and inflation rate changes demonstrate the growth potential of liabilities. The data from an actuarial valuation report is modeled including the following information: Benefit formulas, interest rates, inflation rates, demographics and actuarial assumptions on mortality rates, withdrawal rates, disability rates and retirement rates. The asset classes are then entered with their capital market assumptions, i.e. expected return, standard deviation and correlations. Several efficient asset mixes are tested, as well as the current asset mix. Additionally, the correlation of these assets is taken into account with the factors that affect liability growth. Primarily, this includes the correlation of the asset classes with interest rates and inflation rates. The pension plan is then modeled several hundred times. In doing so, the capital market assumptions are maintained, including the correlation of the assets with the liabilities. The result displays the performance of the pension plan under a wide range of market conditions. Finally, we can analyze the results of the projections, such as the probability of remaining funded and the potential range of future contributions. Each portfolio is then analyzed for its ability to satisfy the goals and constraints of the client, such as a desired growth in funded ratio while minimizing the probability of required contributions. The product of an Asset/Liability study is the identification of investment portfolios that are most likely to meet an institution's unique expected future cash outflows or spending needs while minimizing the risk that those needs will not be met.
		© 2010 R.V. Kuhns & Associates, Inc.