ALM

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ALM Strategic Asset AllocationInvestment
management for insurance companies and pension
fundsDeAM Insurance Solutions

• June 2006

Evgenij Minkin
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Organization of Deutsche Bank
Alternative Investments Real Estate Infrastructure
Hedge Funds Retail Mutual Funds Retail
Structured Products Traditional
Institutional Insurance Asset Management Fixed
Income Equity Quantitative Strategies Cash
As rated by Standard Poors/Moodys Investors
Service as at 31 December 2005
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Global Assets under ManagementEUR 535.8 billion
Insurance assets are 22 of global assets under
management
As at 31 December 2005 Due to rounding, numbers
may not add up to total Note Equity and Fixed
Income Assets above include assets managed as a
part of the Balanced mandates
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DeAMs global insurance presence

• A diversified global insurance asset management
  organization
• USD 142 billion in assets under management
• 90 dedicated insurance employees including
  investment professionals
• Broad range of capabilities, tailored to client
  objectives
• Clarity of purpose value creation for clients

As at 31 December 2005 Joint venture with
Harvest Fund Management
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Global Insurance Assets under ManagementEUR
119.8 billion total
Asset allocation
Regional breakdown
As at 31 December 2005 By service area Due to
rounding, numbers may not add up to total Assets
shown exclude the Stable Value product, which is
manufactured by DeAMs global insurance business
unit they do not include assets in which we
provide sub-advisory management of assets
distributed at third-party insurance companies
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it seems that optimists are working for
insurances

• The history shows the pro-cyclic behavior of
  insurance asset management.

Equity exposure and equity prices
Equity exposure, unrealized losses and equity
prices
Source GDV, Thomson Financial Datastream
Source GDV, Thomson Financial Datastream
Rising equity exposures with increasing or high
stock prices, the asset management was not able
to reduce this exposure due to unrealized losses.
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What are usually taken as reasons for high equity
exposures?

• Protection from inflation
• Grow shareholder value / surplus

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Agenda

• The arguments towards high equity exposure
  revisited
• Which process assures the systematic optimization
  of the Strategic Asset Allocation with respect to
  liabilities?

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Protection from inflation The connection between
inflation and equity performance

• Intercept of the regression 17.73
• Slope of the regression -3.1
• R-square 6.44

During the last 40 years, the dependence of
equity performance on inflation rates was
negative and statistically insignificant
A better protection against inflation is provided
by inflation linked bonds
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The Shareholder Value approach

• Diversification assumption symmetric
  participation at asset performance
• The shareholder is interested in
  insurance-specific risk
• Asymmetric participation in returns lower
  participation at the upside
• The shareholder covers all guarantees, small
  participation on assets outperforming the
  guarantees
• The Principal-Agent-Conflict
• Incentive to load systematic risk

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Agenda

• The arguments towards high equity exposure
  revisited
• Which process assures the systematic optimization
  of the Strategic Asset Allocation with respect to
  liabilities?

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Which process assures the systematic optimization
of the Strategic Asset Allocation with respect to
liabilities?
Modeling of Liabilities
Calibration of immunizing portfolio
Determination of an efficient SAA
Overlay/?- Management
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The modeling of liabilitiesThe interdependence
with assets
The dependence of technical reserves and the path
of the book yield
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Optimizing the SAA IThe immunizing portfolio
Cashflow of liabilities and assets

• Cashflow der Liabilities und Assets

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Optimizing the SAA IIThe efficient frontier (1)
The immunizing portfolio is a critical benchmark
to be outperformed by the portfolio management
and a key reference point calibrating the
efficient frontier
Corporates Money market Equity exposure Government
s
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Executive summary

• The usual argumentation towards high equity
  exposures is questionable
• No relationship between equity performance and
  inflation
• Due to the asymmetric participation, shareholder
  should prefer low systematic risk
• The portfolio immunizing the liabilities is the
  key reference calibrating the efficient frontier
• The capacity to take risks should determine the
  choice of one portfolio of the efficient frontier
  as benchmark for the portfolio management
• The performance attribution should show the
  performance of the immunizing portfolio, of the
  efficient portfolio implemented as benchmark and
  of the portfolio effectively invested in and
  therefore make the "real" a transparent

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Contact

• DWS Investment Russia
• Ul. Shepkina 4
• 129090 Moscow
• Elena Loginova, CEO
• Tel. [phone] - 5230
• elena.loginova_at_db.com
• Arsen Manoukian, Head of Corporate Sales
• Tel. [phone] - 4955
• arsen.manoukian_at_db.com

Although the information herein has been obtained
from sources believed to be reliable, we do not
guarantee its accuracy, completeness or fairness.
Opinions and estimates involve a number of
assumptions which may not prove valid and may be
changed without notice. Neither Deutsche Asset
Management nor its affiliated enterprises assume
any form of liability for the use of this
publication or its contents. Past performance is
no guarantee of future results and no assurance
can be given that any structure described herein
would yield favourable investment results or that
the Fund's investment objectives will be achieved
or that the investor will receive a return of all
or part of their investment.