<abstract xmlns="http://www.w3.org/1999/xhtml"><p> Insurance companies are facing major challenges that point to the need for control process and risk management. Risk management in insurance has a direct impact on solvency, economic security, and overall financial stability of insurance companies. It is very important for insurance companies to adequately calculate risks to which they are exposed. Asset liability management (ALM), as an integrated approach to financial management, requires simultaneous decision-making about categories and values of assets and liabilities in order to establish the optimum volume and the ratio of assets and liabilities, with the understanding of complexity of the financial market in which financial institutions operate. ALM focuses on a significant number of risks, whereby the emphasis in this paper will be on interest rate risk which indicates potential losses that may reflect in a lower interest margin, a lower value of assets or both, in terms of changes in interest rates. In the above context, the aim of this paper is to show how to protect from interest rate changes and how these changes influence the insurance market in Montenegro, both from the theoretical and the practical point of view. The authors consider this to be an interesting and very important topic, especially because the life insurance market in Montenegro is underdeveloped and subject to fluctuations. Also, taking into account the fact that Montenegro is a country that has been making serious efforts to join the EU, it is expected that insurance companies in Montenegro will strengthen their financial position in the market even using the ALM traditional techniques, which is shown in this paper.</p></abstract>

Insurance companies are facing major challenges that point to the need for control process and risk management. Risk management in insurance has a direct impact on solvency, economic security, and overall financial stability of insurance companies. It is very important for insurance companies to adequately calculate risks to which they are exposed. Asset liability management (ALM), as an integrated approach to financial management, requires simultaneous decision-making about categories and values of assets and liabilities in order to establish the optimum volume and the ratio of assets and liabilities, with the understanding of complexity of the financial market in which financial institutions operate. ALM focuses on a significant number of risks, whereby the emphasis in this paper will be on interest rate risk which indicates potential losses that may reflect in a lower interest margin, a lower value of assets or both, in terms of changes in interest rates. In the above context, the aim of this paper is to show how to protect from interest rate changes and how these changes influence the insurance market in Montenegro, both from the theoretical and the practical point of view. The authors consider this to be an interesting and very important topic, especially because the life insurance market in Montenegro is underdeveloped and subject to fluctuations. Also, taking into account the fact that Montenegro is a country that has been making serious efforts to join the EU, it is expected that insurance companies in Montenegro will strengthen their financial position in the market even using the ALM traditional techniques, which is shown in this paper.

Mechanisms of Protection from Interest Rate Risk with Reference to the Life Insurance Market in Montenegro

Journal of Central Banking Theory and Practice

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Insurance companies are facing major challenges that point to the need for control process and risk management. Risk management in insurance has a direct...

Mechanisms of Protection from Interest Rate Risk with Reference to the Life Insurance Market in Montenegro

Published Online: Jan 23, 2018

Page range: 17 - 42

Received: Feb 10, 2017

Accepted: Aug 23, 2017

DOI: https://doi.org/10.2478/jcbtp-2018-0002

Keywords
insurance market, ALM, reserves, interest rate, immunization, life insurance

© Central Bank of Montenegro

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Mechanisms of Protection from Interest Rate Risk with Reference to the Life Insurance Market in Montenegro

Published Online: Jan 23, 2018

Page range: 17 - 42

Received: Feb 10, 2017

Accepted: Aug 23, 2017

DOI: https://doi.org/10.2478/jcbtp-2018-0002

Keywordsinsurance market, ALM, reserves, interest rate, immunization, life insurance

© Central Bank of Montenegro

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
insurance market, ALM, reserves, interest rate, immunization, life insurance