Investment Policy: What Is Important and Why?

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Over Strategic Asset Alliance’s 25+ years working with insurers and 15+ years working with risk pools, 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.
II. Investment Responsibilities
  • 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 company’s goals and how investment performance will tie into the 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 & Activities
  • 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
& Reporting
  • 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.

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.


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