Investment Policy: What Is Important and Why?

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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.
II. Investment
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
& 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.

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.

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