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Best Risk Management Solution Winner: AIA Group Ltd

Published: Feb 2022

Photo of Gavin Gonsalves, Associate Director, Treasury Operations, Gary Gray, Head of Treasury Operations and Nick Lee, Liquidity Solutions Lead.

Photo of Gavin Gonsalves, Associate Director, Treasury Operations, Gary Gray, Head of Treasury Operations and Nick Lee, Liquidity Solutions Lead.

Gary Gray

Head of Treasury Operations

AIA Group Limited and its subsidiaries (collectively “AIA” or the “Group”) comprise the largest independent publicly listed pan-Asian life insurance group. It has a presence in 18 markets and is a market leader in Asia (ex-Japan) based on life insurance premiums and holds leading positions across the majority of its markets. It had total assets of US$330bn as of June 30th 2021. AIA meets the long-term savings and protection needs of individuals by offering a range of products and services including life insurance, accident and health insurance and savings plans. The Group also provides employee benefits, credit life and pension services to corporate clients. AIA serves the holders of more than 39 million individual policies and over 16 million participating members of group insurance schemes. AIA Group Limited is listed on the Main Board of The Stock Exchange of Hong Kong Limited under the stock code “1299” with American Depositary Receipts (Level 1) traded on the over-the-counter market (ticker symbol: “AAGIY”).

Liquidity risk management framework delivers for AIA Group

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The challenge

Liquidity risk has been an evolving subject in recent years, creating new operational challenges due to the COVID-19 pandemic, market disruptions and new derivatives and collateral regulatory requirements that have had to be managed against the background of heightened market volatility. Increased regulatory focus on liquidity risk has made this an even more pressing topic.

“We adapted our liquidity risk management framework to take advantage of tactical opportunity and manage cash efficiently, whilst effectively managing emerging risks, and provide strategic guidance to management,” explains Gary Gray, Head of Treasury Operations.

The solution

AIA has modernised its liquidity risk management framework. We are using standardised data, metrics and reporting across 18 markets in Asia to deliver clear, consistent and timely information to management. This supports real-time decision-making, which proved especially important in managing liquidity risk during the initial phase of the COVID-19 pandemic.

Best practice and innovation

Leveraging the treasury infrastructure and the expertise of the treasury shared services teams, AIA has integrated a modern liquidity risk management framework with the management of daily liquidity and a longer-term view of structural liquidity across markets. This provides insights into the liquidity characteristics of each market, supporting real-time decision making. This proved especially beneficial during the market liquidity stresses which emerged during the COVID-19 pandemic.

There are four key pillars that are managed holistically as part of AIA’s integrated liquidity risk management framework:

  1. Daily liquidity adequacy – leveraging its daily cash forecasting capabilities, AIA calculates a daily liquidity adequacy level that forecasts each market’s liquidity outlook for the proceeding ten business days on a rolling basis. This strengthens day-to-day liquidity management by delivering insights to the characteristics of each market and enables specific, actionable real-time decisions.

  2. Structural liquidity adequacy – integrating daily liquidity with a longer-term view of structural liquidity adequacy over the next 12-months helps ensure that AIA Group can continue to meet its financial obligations. This enables more time for the development of strategic views on requirements for secondary and contingent sources of liquidity, ensuring all financial obligations can be met in different scenarios.

  3. Investment portfolio liquidity – AIA Group’s fixed income portfolios make up a significant portion of its liquidity sources. The new liquidity risk management framework enables the company to calculate the liquidity of these investment portfolios a daily based on observed fixed income market inputs. This delivers real-time visibility to the level of liquidity risk in its fixed income portfolios amid rapidly changing market conditions.

  4. Liquidity management and contingency plans – with a centralised list of liquidity sources and options by market, AIA can identify any potential capacity shortfalls and ensure each market has the capability to systemically design plans and operating procedures to meet unforeseeable liquidity needs. Best practices are also shared across the region to ensure consistency and standardisation.

“With this modernised framework in place, AIA is well-positioned to manage liquidity for the benefit of all stakeholders by responding faster and smarter as and when required,” says Gray.

Key benefits

  • Provide precise, standardised and consistent liquidity metrics.

  • Enable better decision making.

  • Improve cash management.

  • Enhance cost efficiency.

The Adam Smith Awards Asia is the industry benchmark for best practice and innovation in corporate treasury. The 2021 awards attracted a record-breaking 497 nominations. To find out more please visit treasurytoday.com/adam-smith-awards-asia

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