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Investment Captive Strategies

Investment Captive Strategies. Panelists Dave Tatlock , Director at Strategic Risk Services Michael Scotto, Partner at Aon Investment Consulting Frank Tedsesco , Marketing Director at Optimum Quantvest Corp. Why Investments Matter.

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Investment Captive Strategies

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  1. Investment Captive Strategies • Panelists • Dave Tatlock, Director atStrategic Risk Services • Michael Scotto, Partner at Aon Investment Consulting • Frank Tedsesco, Marketing Director at Optimum Quantvest Corp.

  2. Why Investments Matter P&C Industry Investment Income vs. Underwriting Income (Pre-Tax Results) • A Balancing Act • For commercial P&C insurers, investment results have historically offset weaker underwriting profits Source: P&C industry statutory financial results as reported by S&P Global Market Intelligence (SNL.com). Includes investment income and realized and unrealized capital gains and losses through December 31,2018.

  3. Where to Begin?

  4. Governance Investment Policies and Guidelines are Fundamental Investment Policy Statement (IPS) • Defines roles and responsibilities of the various parties • Presents long-term return and risk objectives • Documents major constraints • Liquidity • Time horizon • Regulatory • Risk preference • Includes asset allocation strategy and targets • Outlines risk control and monitoring procedures • There is only one IPS – a living document that should be updated periodically

  5. Governance Investment Policies and Guidelines are Fundamental Investment Guidelines • Investment manager and portfolio specific • Provides the objectives and constraints for fund or portfolio • Typical covers: • Permitted securities, sectors and asset classes • Issue and sector limits • Credit quality thresholds for fixed income portfolios • Benchmarks and performance objectives • There is one investment guideline per manager, so depending on the number of managers in the portfolio, there can be multiple investment guidelines

  6. What it looks like in Practice Investment Policy Statement and Guidelines • IPS Asset Allocation and Investment Structure • Asset Classes Money Market Fixed Income Equities Asset Manager 1 (active) • Asset Manager/Guidelines Asset Manager 1 (passive) Asset Manager 1 (active) Asset Manager 2 (passive)

  7. Risk Management Primary Risks to Consider Key Questions • How much cash, fixed income, equities to have in the portfolio? • Asset Allocation • Main source of portfolio volatility and risk Liquidity • Are investments liquid enough to fund worst case near term outflows? Projected outflows should be understood to avoid a “liquidity crunch” • Are investment guidelines capturing important risk constraints? Concentration Sector, issuer& quality limits Manager Risks Outside fund manager performance • Are investment managers performing inline with benchmarks, peers, etc.? Operations • Do third party managers have appropriate controls? Internal Controls

  8. Asset Allocation Fixed Income Returns • P&C Industry Asset Allocation (YE’18) • 7% Cash • 68% Bonds • 21% Equities • 4% Other Assets Sources: Bloomberg, MSCI, Russell, S&P Global Market Intelligence (SNL.com). .

  9. Asset Allocation Equity Returns Sources: Bloomberg, MSCI, Russell. .

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