A smart approach to the validation of stochastic dynamic ALM models

For companies using deterministic, liability-only embedded value models, a full understanding of the results is usually within reach, and validation of these models may be relatively straightforward. However, model requirements have been changing at an accelerating pace, with the evolution of reporting measures such as Market Consistent Embedded Value, Solvency II, and now IFRS 17, and in some markets these requirements necessitate the introduction of stochastic dynamic Asset Liability Management (ALM) models.

In this paper, we cover the following topics:

• Current approaches to validation of stochastic dynamic ALM models
• New approaches to validation of stochastic dynamic ALM models
• Case study using Milliman Agile ALM