Enterprise Risk and Return Management for Financial Institutions

Abstract

It is important to include both risk and return in finding the optimal balance of assets and liabilities for financial institutions. Insurance companies, with their range of sophisticated assets and liabilities, are perhaps the best example of the value of such an approach. Examples in the paper refer to the insurance industry, but parallels to other types of financial institutions are easily drawn. The analysis in the paper shows that a comprehensive approach to risk and return produces some interesting conclusions with respect to asset allocation, active versus passive asset management, and the mix and pricing of liabilities.