Effective asset liability management is central to success for APAC insurers, yet many firms are battling with outdated systems that may fail to keep pace with new data sources, changing asset allocations, and shifting regulatory regimes.
Our latest research covering insurance asset management executives at firms with total assets under management of $3.823 trillion in APAC found almost one in ten respondents find it difficult for their ALM systems to handle changes in asset allocation and new data sources.
Just 17% of insurers in APAC say their ALM systems can “very easily” cope with diversification and new instruments.
These are troubling findings, at a time when the region’s insurers face a combination of rising regulatory expectations, more complex balance sheets, increasingly volatile markets, and growing allocations to alternatives.
Clearly those insurers with sophisticated ALM systems will be better placed to survive in increasingly competitive markets, and it is no surprise that participants in our study are channeling significant spend towards updating technology.
Regulation is the number one motivation for accelerating investment in ALM infrastructure as most APAC markets are aligning with, or moving closer to, Solvency II-style frameworks. These regimes require far more granular modelling of asset and liability risks that are beyond the reach of outdated ALM systems.
At the same time, regulators require insurers to run more frequent, forward-looking stress tests which must be integrated with investment risk, liability behaviour, and capital impacts; again, factors with which legacy ALM systems often struggle.
The second motivating factor for technology spending was the shift towards illiquid, esoteric, or alternative asset classes that require more sophisticated risk models. As insurers across Asia-Pacific transform the way they invest, portfolios that once revolved around government bonds and high-grade credit now increasingly include private market funds and alternatives.
While this shift promises better yields and diversification, these asset classes demand more advanced risk models and data sophistication . These assets also introduce irregular cashflows, uncertainty in valuation, lower liquidity, and complex risk characteristics. Legacy systems often cannot model these nuances properly, leading to unreliable insights and capital inefficiencies.
Just as in other areas across financial services, insurers are contending with the rapid evolution of modern computing. Cloud scalability, more sophisticated modelling, and AI-powered analytics are increasingly seen as essential for generating meaningful insight on risk and capital efficiency. Firms must invest in the very latest systems if they are to keep up.
Insurers recognise that modern ALM requires speed, precision, and integration that legacy systems simply cannot deliver anymore. The risks of not investing and improving ALM systems are manifold, and APAC insurers rightly appreciate the importance of keeping up with regulations. Modern ALM also makes a real difference in reducing errors, seizing opportunities, and ultimately being more competitive.
Insurers across APAC are clearly bracing for a future where ALM is not just a risk function but a strategic advantage. The challenge now is ensuring firms make the appropriate investment in the right technology to ensure they make the operational and cultural shifts needed to survive.