Over Strategic Asset Alliance’s 25+ years working with insurers, we have developed and continue to enhance our Investment Policy Statement best practices. The best practices specify the components that should be included in a policy and how the policies should be organized and written.
To help insurers and government risk pools better understand the components of a quality investment policy statement, we’ve provided an overview of Investment Policy “Best Practices.”
|Key Component:||What Is This?||Why Is This Important?|
|I. Preamble||An introductory statement declaring the effective date of the policy and the purpose of this document as it pertains to your company’s investment process.||To identify the key elements outlined within the Investment Policy along with the requirements your company’s investment portfolio will adhere to.|
|A detailed outline identifying all internal and external parties with an active role in your insurer’s investment process, such as CFO, CEO, CIO, Consultant, etc.||To clearly define each party’s specific role and duties within the investment process and ensure each party adheres to the duties assigned to them.|
|III. Investment Return and Management Objectives||An outline of your insurance company’s goals and how investment performance will tie into your insurer’s overall business.||To make certain all parties, such as the CEO, investment manager and investment consultant, understand what the company’s investment portfolio should be achieving.|
|IV. Asset Allocation & Risk Management Guidelines||A tabular outline of all portfolio limitations, target allocations, desired allocation ranges, maximum allocations, and any other specific measures.||This clear outline will ensure that the investment portfolio adheres to its required structure, as determined by the Board, Committee, etc.|
|V. Prohibited Investments
|An overview of specific prohibited investments or investment activities.||Specifying prohibited investments safeguards the investment portfolio from any unwanted deviations; ensuring the portfolio complies with what is outlined in the investment policy.|
|VI. Investment Performance
|A list of all standard and customized benchmarks that have been approved for measuring portfolio performance.||Notifies all parties of how performance of the investment portfolio will be evaluated, as well as how often investments will be measured against the benchmarks.|
|VII. Strategic Asset Allocation
& Portfolio Benchmarking
|An outline of how the investment portfolio is expected to perform against the benchmark.||For all parties to understand the expectations of the portfolios performance and how returns will support the company’s overall business.|
|VIII. Investment Policy
& Guidelines Evaluation
|A schedule of how often the investment policy will be reviewed.||A consistent review schedule is needed to account for any material changes in regulation, rating agency criteria, or business conditions.|
Of course, the investment policy is just one component of a strong investment process. Contact SAA to discuss your company’s investment process.
Smaller-sized insurance companies and government risk pools can sample SAA Solutions’ Investment Policy generator to generate a sample investment policy, while implementing these best practices.