ALM Leakage Lab

Explore how structural ALM frictions leak yield over time

1LX provides real-time ALM, liability modeling, and balance-sheet optimization — delivered as a managed service.
We quantify yield leakage across the balance sheet, optimize asset-liability match, and enable continuous ALM — replacing quarterly, static processes with real-time intelligence.

Estimated yield recaptured

20–100+

bps / year by moving from static to real-time ALM across multiple leakage channels.

This simulated scenario

bps

Total yield at stake per year in this stochastic scenario.

Reinvestment drag

Range: 10–40 bps

This scenario:

25.0 bps

Cash flows remain in short-term Treasuries instead of target credit assets.

Duration drift & shocks

Range: 5–25 bps

This scenario:

15.0 bps

Duration gap re-opens between meetings and gets hit by rate moves.

Liquidity buffers

Range: 5–20 bps

This scenario:

12.5 bps

Extra cash and high-grade liquidity held idle to cover uncertain outflows.

Suboptimal deployment

Range: 10–35 bps

This scenario:

22.5 bps

Assets deployed into lower-yield opportunities due to limited visibility into forward needs.

Capital inefficiency

Range: 5–20 bps

This scenario:

12.5 bps

Over-capitalized balance sheet limits leverage and wastes investable spread.

Hedge & collateral drag

Range: 5–15 bps

This scenario:

10.0 bps

Hedge budgets and posted collateral sit in cash instead of earning portfolio yield.

Sliders randomly sample within each range every few seconds to show how quickly leakage can add up.

ALM Simulator

Reinvestment and mismatch leak yield simulator showcases the impact of one single source of ALM leakage

ALM Leakage Lab

See how reinvestment and mismatch leak yield.

Start with a duration-matched book. Watch how reinvestment into short Treasuries creates duration drift, then see how that drifted gap leaks yield at different ALM frequencies.

Reinvestment drag

14.8 bps / yr

≈ 118 bps of cumulative yield leakage over a 8.00-year block.

Coupons and principal that arrive between ALM meetings are temporarily parked in short Treasuries instead of target assets. The model estimates the annual and lifetime yield shortfall this creates at Quarterly ALM.

Duration drift this period

Liability target duration

8.00 yrs

Target liability profile for this block.

Asset duration after this ALM cycle

7.58 yrs

After reinvesting this period's cashflows into short-term Treasuries.

Drifted mismatch

0.42 yrs

Duration gap opened up over this quarterly as cashflows move into short Treasuries and sit there until the next ALM meeting.

Balance sheet assumptions

Liability / target duration8.00 yrs

Portfolio yield9.0%

Treasury yield3.5%

Average time parked in short Tsies50% of ALM period

The model assumes new cashflows between ALM meetings are parked in short-term Treasuries for the selected share of each ALM period, then rotated into target assets at the next ALM date.

Key takeaway: Even if assets and liabilities are perfectly matched on day one, a meaningful slice of the book comes back each year as coupons and principal. Under quarterly or monthly ALM, that cash is often parked in short Treasuries for part of each period, pulling duration down and creating reinvestment drag. Real-time ALM continuously redeploys those flows into target assets, reducing both duration drift and the annual and lifetime leakage shown above.

Conceptual simulations reflecting the ALM frictions 1LX is built to monitor and reduce in production.

Yield Leakage

Real portfolios face 3 major types of ALM inefficiencies.

Structural ALM Frictions

Persistent, model-driven issues that occur on every balance sheet:

Reinvestment drag
Duration drift
Liquidity buffers
Suboptimal deployment
Capital inefficiency
Hedge & collateral drag
Roll-down not captured
Curve-shape mismatch
Credit migration effects

These are the most measurable and often total 20–80 bps on their own.

Market-Driven ALM Frictions

Harder to time and usually amplify existing mismatches:

Rate shocks
Curve steepening / flattening
Spread volatility
Spread beta mismatch
Secondary-market dislocations

These typically add 5–30 bps depending on market conditions.

Operational & Organizational Frictions

These arise because processes move slower than markets:

Settlement timing mismatches
FX and cross-border settlement delays
Procurement and credit-committee cycles
New business variability
Pipeline visibility gaps
Operational lags (systems, approvals, custodians)

Individually small — but together meaningful, often 5–15 bps.

Structural ALM Frictions

The six largest and most persistent sources of yield leakage are structural, recurring, and solvable with real-time ALM. These are where insurers lose the most today.

10–40 bps

Reinvestment Drag

Cash flows remain in short-term Treasuries instead of target credit assets.

5–25 bps

Duration Drift & Shocks

Duration gaps reopen between meetings and compound with rate moves.

5–20 bps

Liquidity Buffers

Excess cash and high-grade liquidity are held idle to cover uncertain outflows.

10–35 bps

Suboptimal Deployment

Assets are deployed into lower-yield opportunities due to limited pipeline visibility.

5–20 bps

Capital Inefficiency

Inefficient capital usage restricts leverage and reduces investable spread.

5–15 bps

Hedge & Collateral Drag

Derivative collateral and hedge budgets sit in cash instead of earning portfolio yield.