Optimal investment strategies of conservative investor - reinsurer

The aim of this paper is to evaluate investment strategies of conservative investor – reinsurer and assess their performance. In addition, risk exposure is assessed as well. The ultimate goal is to recommend optimal investment strategy for a given investor's risk profile which is influenced by reinsurer's underwriting risk sourced from its core business activities, i.e. sale of reinsurance products to various business segments with various risk exposures. Considering risk pool of particular liability (i.e. from its multiple business segments) and underlying investment portfolio, reinsurer's portfolio managers seeks to choose suitable investment strategy that matches risk profile of given portfolio. For the purpose of study of this specific investor's risk profile, reinsurer's investment process is further analysed with focus on Asset Liability Matching (ALM) framework. Core business activities of reinsurer source significant stream of liquidity which makes reinsurer alongside pension funds and insurance companies significant subject on financial market in terms of investing, however its investment strategies are limited predominantly to conservative strategies due to government regulations, i.e. Solvency which portfolio manager has to consider. We modelled and analysed reinsurer's three investment strategies: (i) North American Equity USD Strategy, (ii) Structured Credit North American USD Strategy and (iii) Corporate Credit North American USD Strategy. Bloomberg Terminal and BlackRock Aladdin platform were used to source securities, construct portfolios and assess their performance on a 5 year period. The length of the assessed period was chosen due to period of macroeconomic stability without disturbing events, e.g. shocks and contractual life of underlying underwriting products.