SOA ILA LAMIndividual Life & Annuities — Life ALM & Modeling

Fellowship (FSA)

5 hours·≈10 written-answer questions·≈400 study hours

Syllabus learning objectives

Paraphrased from the SOA syllabus so the study-plan builder and practice sets track the topics you will actually be examined on. Weights are the official topic ranges.

Asset-liability management & interest-rate risk

35%

Compute duration, convexity and key-rate durations for asset and liability cash flows.
Design an immunisation or cash-flow matching strategy and evaluate its limitations for products with embedded options.
Assess disintermediation and reinvestment risk under rising and falling rate scenarios.
Recommend ALM strategies for SPDA, payout annuity and UL blocks.

Economic scenario generators & stochastic modeling

25%

Describe real-world versus risk-neutral scenario generators and their appropriate uses.
Calibrate and validate interest-rate and equity models used in principle-based reserving and capital.
Apply variance reduction and nested-stochastic shortcuts (replicating portfolios, LSMC).
Interpret model output distributions: CTE, percentiles and greatest present value of accumulated deficiency.

Hedging guarantees (GMxB, FIA)

25%

Compute delta, rho and vega exposures of guaranteed minimum benefits.
Design a dynamic hedging programme and quantify basis, gap and model risk.
Evaluate hedge effectiveness and its statutory/GAAP accounting consequences.
Compare dynamic hedging with static reinsurance for VA guarantees.

Model governance & validation

15%

Describe model risk management frameworks (ASOP 56, SR 11-7 concepts).
Design a model validation covering inputs, methodology, implementation and outputs.
Assess controls for assumption changes, model changes and end-user computing.
Communicate model limitations to stakeholders.

Overview

LAM covers the modeling and ALM side of life and annuity management: matching assets and liabilities, generating and using stochastic scenarios, hedging guarantees and governing the models that do it.

Duration: 5 hours
Questions: ≈10 written-answer questions
Style: Computer-based written answer
Credit: ILA track FSA requirement
Passing: ≈ 60–65% of points

Syllabus map

Asset-liability management & interest-rate risk

35%

Interest Theory and Time Value of Money Risk Measures and Capital

Economic scenario generators & stochastic modeling

25%

Stress Testing and Emerging Risk

Hedging guarantees (GMxB, FIA)

25%

Risk Measures and Capital

Model governance & validation

15%

Stress Testing and Emerging Risk

Key formulas

Macaulay & modified duration $\;D=\dfrac{\sum t\,v^t CF_t}{\sum v^t CF_t},\quad D_{mod}=\dfrac{D}{1+i}$

Surplus duration $\;D_S=\dfrac{A\,D_A-L\,D_L}{A-L}$

Immunisation (Redington) $PV_A=PV_L,\;D_A=D_L,\;C_A>C_L$

CTE $\;\mathrm{CTE}_\alpha=E[X\mid X>\mathrm{VaR}_\alpha]$

Delta hedge $\;\Delta_{guar}=\dfrac{\partial V}{\partial S}$ ; hedge position $=-\Delta_{guar}$ futures notional

Study strategy

Draw the cash-flow picture before computing durations; sign errors are the commonest mistake.
For hedging questions, always list the risks the hedge does not cover (basis, vol, policyholder behaviour).
Governance questions reward structure: inputs → methodology → implementation → outputs → use.

Common traps

Using modified duration on liabilities with rate-sensitive lapses (effective duration is required).
Treating a risk-neutral ESG as suitable for real-world capital projections.
Forgetting that hedge gains/losses may not match the statutory reserve movement.

← SOA ILA LPM SOA QFI QF →