In setting limits for particular types of risk, the social security fund should consider its solvency position and its risk tolerance. Limits should be set after careful consideration of corporate objectives and circumstances, and should take into account the projected outcomes of scenarios run using a range of plausible future business assumptions. Within these limits, risks can be reduced if this is cost effective, or increased, if justified by the expectation of enhanced returns and the availability of additional capital, without endangering the capacity of the insurer to meet its commitments to policyholders.
The ALM process chosen will vary from entity to entity and reflect circumstances relevant to each insurer and external and internal constraints. External constraints include supervisory and legislative requirements, rating agency concerns, and the interests and expectations of policyholders and other stakeholders. A significant constraint is the liquidity of the assets and liabilities which may compromise the ability to price, measure and hedge exposures.