Awards 2012: Best bank, ALM advisory: Royal Bank of Scotland

Royal Bank of Scotland’s (RBS) insurance asset-liability management (ALM) team provides a hub for insurance clients and a link to other teams within the bank. This, says Ross Evans, London-based director in the bank’s insurance ALM advisory team, sets it apart from other banks. “We are lined up with the other teams so we can be the key point of contact with the client to link up with the rest of the bank on actuarial issues, asset opportunities and Solvency II. We are very market-minded and we can bring in the knowledge across the bank and draw that together,” says Evans.

The ALM team has contributed to a number of professional working parties on technical issues during the past year. This has included work on stable measures of tail risk, hedging the risk-free rate under Solvency II and centralised clearing of over-the-counter derivatives. The team provides thought leadership and analysis, such as its annual review of the UK life sector, which provides a comprehensive run-through of the latest FSA returns for all major UK insurers, highlighting important trends. The team also provides regular updates on regulatory changes, highlighting likely implications for markets, ALM and investment strategies.

Emily Penn, London-based director in insurance ALM advisory at RBS, says: “We are now one of the largest dedicated actuarial teams, the longevity of that has enabled us to build strong relationships with our clients. Clients appreciate we are first to publish notes with our views on the ALM impact of new developments.”

Clients highlight the team’s in-depth knowledge and the ability to provide practical, cost-effective solutions. One client comments: “The team has provided us with outstanding analytical work during the past year. They have proven themselves to be thorough, and often delivered at short notice. The high level understanding of our business has made it like working as a single team. In addition, RBS brings unique added value with its profound knowledge and insights of Solvency II and other regulatory issues.”

RBS was the only bank asked to present to the European Insurance and Occupational Pensions Authority in 2011 as an expert on the development of the extrapolation method for determining the risk-free yield curve for discounting liabilities under Solvency II. The bank has subsequently worked with clients on developing solutions to hedge the resulting curve. In June 2012, the Dutch and Danish regulators introduced the UFR method in response to falling market yields. This led to large-scale hedge rebalancing with clients. RBS analysed ways in which hedging the UFR curve can be improved by either alterations to the standard delta ladder methodology or through replicating portfolio analysis. Evans says: “We are working with our client to help manage the trade-off between the two conflicting metrics: the Solvency II approach and the market-consistent approach.”