Versita

A TACTICAL ASSET ALLOCATION MODEL FOR INSURANCE COMPANY

Nurdiana Agustina ,Mohammad Benny Alexandri ,R. Anang Muftiadi ,R. Ratna Meisa Dai
Keywords: Contribution/Originality: This study provides alternative decision-making for insurance industries and investment managers in determining the weight of the allocation of investment assets into the selected portfolio, whereas other researchers have never conducted this study. ,

Abstract

In this article, we offer a mathematical model of asset allocation that considers asset and liability management in insurance companies. The SAA guides the investment asset allocation process, which contains regulations regarding permitted investment instruments and the maximum allocation weight placed on the permitted investment instruments. Then it is formulated in the TAA in the form of tactics to determine the weight of the proper asset allocation placed on permitted investment instruments which we call the tactical asset allocation model (TAAM). TAAM consists of a reverse model shown to fulfill insurance companies' liabilities and a linear programming model (LPM) shown to optimize insurance companies' investment income. We show that the tactical asset allocation model is beneficial in increasing the confidence of investment managers in making decisions to determine the amount of weight allocation for investment assets in a transparent and accountable manner, and the methodology can meet the ideal challenges in every investment decision between risk, return, and the company's liquidity capability. We computationally illustrate the robustness of the tactical asset allocation model using particular numerical examples