Risk management and optimizing investment strategies

Channels: SAA/ALM, Outsourcing, Risk, Governance, Systems/data

Companies: AEGIS Insurance Services, Pacific Life, Conning

People: Hal Pedersen, Hany Gobreial, Nathaniel Molinari

In the current low yield environment insurers are looking at alternative asset classes for potentially higher yields and forecasted returns. However, the alternatives landscape is wide and what assets suit can be different for each company.

“By taking a disciplined approach the long-term investor can find attractive investment opportunities and help to diversify their portfolios in the process,” Nathaniel Molinari senior investment/treasury analyst at AEGIS Insurance Services said.

Finding this disciplined approach will be one of the themes tackled at Insurance Asset Risk Americas 2018 in New York on 25 September.

What it boils down to is the connection between risk appetite and investment strategy, according to Hany Gobreial vice president for risk and capital management at Pacific Life.

“The interconnection between how we measure risk throughout the enterprise and how we justify investments based on the same approach to risk for the asset allocation,” he continues. “For example, if our excess capital is high relative to our risk appetite, we can justify investing in higher risk assets. If our ‘equity risk’ budget is being taken by variable annuities products, we might want less direct exposure to equity markets because we’re taking our ‘equity markets’ bet on the liability side.”

Hal Pedersen, managing director for risk solutions at Conning, who will moderate the panel at Insurance Asset Risk Americas 2018, said he hoped the conversation would provide “useful and practical tools that allow chief investment officers (CIO) to both understand the risk they are facing in their company, and tailor their investment strategies to best optimise the risk/return trade-off”.

Several insurers are trying to follow that process but there is a lot of room for improvement, Pedersen continued. “And just because you adopted one version, that doesn't mean it won't evolve.”

“Insurance has traditionally been a leader on the risk management front, both from the enterprise- and from the investment perspective,” Molinari said. “That being said, continuous refinement and retooling is needed to help reduce volatility of returns and improve capital performance.”

Additionally, risk management is increasingly seen by regulators, ratings agencies, investors and stakeholders as a critical component of the enterprise, he said. “By developing an integrated risk management view within an organization, the investment portfolio can enhance management’s strategic decisions and create real business value for the enterprise.”

But some challenges stand in the way, not only in terms of managing the technology and getting it working but also communicating to the board through a clear message so that the board understands that what the CIO and his/her team are doing is optimal for the company.

Pedersen, Molinari and Gobreial will speak at Insurance Asset Risk Americas 2018 in New York on 25 September. Click here for more information and to confirm your attendance.


Vincent Huck