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ALM Services for DB Plans

Our ALM services in Japan support the review of investment and funding strategies for organisations targeting improved financial outcomes.

お問い合わせ

An Asset Liability Management (ALM) study of a Defined Benefit (DB) plan is an integrated review of assets and liabilities to set or review the investment and funding strategies that best support financial objectives relative to the plan.

ALM objectives can include

  • Improve funding level
  • Reduce on-going contributions to the plan
  • Minimise unexpected contributions
  • Reduce the plan’s accounting (US GAAP or IFRS basis) pension cost
  • Better match plan assets and liabilities
  • Access any ‘trapped’ surplus

An ALM study aims to assess key pension risks and gain insight into the possible evolution of various pension metrics in the future, such as investment return, funded status and contribution. It can help to better understand the interactions between assets and liabilities and the potential consequences of different investment and funding strategies.

In Japan, ALM studies are generally performed every three to five years, consistently with the plan’s funding cycle.

Our solution

WTW is one of the world’s leading providers of ALM studies for pension plans. Our team, modelling, tools, and processes stand ahead.

Our solution is also independent and provided in each client’s interests. WTW does not provide lead manager, administration, trustee, or brokerage services in Japan.

Team

We bring together the best of local actuarial expertise in our retirement team and the global views and expertise on financial markets and investments of our investment team.

We are market leaders in providing actuarial services to foreign multinationals in Japan. Fully licensed to perform statutory funding valuations, the actuaries in our retirement team have deep knowledge of the Japanese pension environment and funding requirements, to advise on optimal contribution strategies.

In addition, we help clients to invest optimally in Japan and provide advice related to mission and beliefs, risk management plans, asset allocations and risk budgets, portfolio construction and selection of third-party asset managers.

Modelling and analytics

Our ALM study involves projecting consistently assets and liabilities, under multiple economic scenarios for the future, to determine the investment and funding strategies that best support the client’s financial objectives relative to the plan.

Depending on the provider, ALM studies vary widely in terms of modeling and analytics. We trust our advanced modeling and analytic capabilities can provide considerable value to clients in understanding key pension risks and seizing opportunities.

Our approach

  1. Great focus on the plan’s surplus (assets minus liabilities) – rather than on the plan’s asset return – to fund the plan’s liabilities
  2. Consistent modelling of the plan’s assets and liabilities to capture the characteristics and risks of the plan’s liabilities
  3. Stochastic simulations – rather than deterministic projections – to provide a range of possible outcomes and identify key risks
  4. Robust modelling of the plan’s liabilities under different frameworks, such as accounting / PBO liability, funding liability and minimum funding liability
  5. Holistic view with consideration of different perspectives, including investment, funding, accounting, and design

Tool

To simulate assets and liabilities, we use STAR ESG, WTW leading economic scenario generator that generates economic scenarios and distributions of asset returns. STAR ESG is a sophisticated tool used by many of our clients to manage their risk exposures and forms a key component of the advice driving WTW's fiduciary mandates.

Process

We have developed a robust and proven process for investment and funding strategies setting. This process includes the following four phases. The ALM study covers phases 1 to 3.

Phases of an ALM study
Phase 1:
Define objectives and set assumptions
  • Objectives and constraints
  • Financial metrics
  • Asset classes to consider (traditional and non-traditional)
  • Asset assumptions
  • Liability assumptions
Phase 2:
Review current strategies and identify alternatives
  • Stochastic projections of assets, liabilities and cash flows
  • Review of current strategies
  • Identification of alternative strategies
Phase 3:
Evaluate alternative strategies and select solutions
  • Assessment of alternative strategies
  • Identification of the solutions that best meet objectives
Phase 4:
Implement changes
  • Managers structure and selection
  • Governance and delegation
  • Asset transition

Phase 1: we review the plan’s current financial position, confirm objectives, and review the methodology and parameters for the study.

Phase 2: we provide the client with the results of our first round of modeling for the plan, including an assessment of current strategies with respect to the financial objectives. We also identify alternative strategies for further review in phase 3.

Phase 3: we review the detailed forecast results of the alternative strategies selected in phase 2 and help clients selecting the most appropriate strategies for the plan.

Following the ALM study, we can assist implementing the new investment and funding strategies and notably with the manager structure and selection (phase 4).

 

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