OTTI Risk Management

Many insurers were shocked and appalled last year after reviewing their investment portfolio with their external auditors.

Many insurers were shocked and appalled last year after reviewing their investment portfolio with their external auditors. The auditors applied largely arbitrary ‘other than temporary impairment’ (OTTI) rules to investments which required insurers to immediately write down many securities to market value, resulting in an immediate charge to earnings. Although the accountants and regulators will eventually solidify the definition of ‘other than temporary impairment,’ as long as your company invests with even the smallest amount of credit risk, your portfolio will have the potential for future OTTI write downs.

If controlling the amount of OTTI risk in your portfolio is important to your company, you will want to learn more about Strategic Asset Alliances’ OTTI Risk Management Services.

With SAA’s OTTI Risk Management Services, you will be able to answer several key questions, including:

• What is our portfolio’s overall OTTI risk?
• What securities deserve the most scrutiny because they contribute the most to the risk of being written down due to OTTI?
• What can we expect to actually receive in portfolio yield, after expected OTTI write-downs?

SAA’s OTTI Risk Management Services provide the following:

1. A detailed review of your company’s credit risk exposure from the bond portfolio perspective - Because investing in bonds with the best ‘relative value’ or within improving sectors does not take into account the potential for OTTI, your investment manager could be inadvertently subjecting your portfolio to future OTTI problems.
2. A detailed security by security analysis of your company’s OTTI exposure. Every insurer reviews its ‘credit watch list’ periodically, in attempting to understand the securities most likely to cause credit problems. However, this analysis tends to be qualitative in nature and, unable to accurately quantify potential OTTI exposure. Of course, every insurer reviews its portfolio to see which securities may trigger OTTI problems today.  However, this analysis approach is bound to reviewing current market values versus book. It does not fully and explicitly consider what may occur in the future. By determining exactly which securities may cause OTTI problems in the future and the likelihood of that occurrence, SAA’s OTTI Risk Management Services can provide an early warning that goes beyond any ‘credit watch list’ or OTTI review listing available today.

SAA’s Risk Management Services are totally flexible and can embody your company’s expectations for credit risk, interest rates, credit spreads, yield curve structure, and equity volatility. Or, you can use SAA’s expectations as a base case from which to develop "what it" models for future results.

SAA’s OTTI Risk Management Services can be coordinate with SAA’s Portfolio Credit Review to quantify OTTI Risk as well as overall default risk.