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Institutional Investment - February 21, 2012

First-year research work from the EDHEC-Risk/Russell Investments research chair on "Solvency II Benchmarks" presented at an EIFR meeting in Paris

Philippe Foulquier                Romain Deguest

At a breakfast seminar organised in Paris on 31 January, 2012 by the European Institute of Financial Regulation (EIFR), Philippe Foulquier, Professor of Finance & Accounting at EDHEC Business School and Director of the EDHEC Financial Analysis and Accounting Research Centre, and Romain Deguest, Senior Research Engineer at EDHEC-Risk Institute, were invited to discuss the topic of how to optimise capital cost and equity investment within the framework of Solvency II.

Looking at how to address the constraints of Solvency II and more specifically at how to define asset allocation strategies that comply with prudential objectives and optimise capital costs, Philippe Foulquier and Romain Deguest presented an internal risk mitigation model based on dynamic asset allocation techniques, enabling reduced regulatory capital charges and improved risk management (Pillar 2), to an audience of over sixty representatives from insurance and asset management companies.

This model is drawn from the work of the "Solvency II Benchmarks" research chair at EDHEC-Risk Institute in partnership with Russell Investments, which aims to design new benchmarks for European insurance companies that are representative of a dynamic allocation strategy to equities. The objective of the initiative is to enable all small- or medium-sized European insurance companies which do not have a full internal risk mitigation model to be able to avail of an objective academic reference in order to manage the risk of their equity investments. The benchmarks, based on dynamic core-satellite and life-cycle investing techniques, will allow investors to respect a maximum drawdown or maximum loss limit for specific horizons.