The matching of assets to liabilities

Abstract

1.1. The concept of the matching of assets to liabilities is fundamental in matters of finance. In its broadest sense matching is relevant both to the investment of life office and pension funds and to actuarial calculations in relation to those funds.1.2. Matching is inherently connected with the uncertainty of future conditions, as measured by such indicators as rates of interest, inflation and currency exchange. It is when conditions do not work out as hoped for or expected that the risks associated with mis-matching can materialize. Whether considering investment policy or an actuarial calculation it is important that the nature of a portfolio which minimizes these risks be appreciated, and yet it is often difficult to specify such a portfolio with precision. This may not be a source of difficulty in practice when the judgement of the actuary is applied to the problem in hand, but there is evident scope for refinement of the concepts.