Presentation on theme: "Wealth and Investment Management Constructing an Investment Portfolio for a Captive Insurance Company Colleen McHugh Corporate Investment Adviser, Vice."— Presentation transcript:
Wealth and Investment Management Constructing an Investment Portfolio for a Captive Insurance Company Colleen McHugh Corporate Investment Adviser, Vice President, Barclays Wealth & Investment Management Title page example
2 3 PROFILE CAPTIVE LIFE CYCLE INVESTMENT CONSIDERATIONS FOR A CAPTIVE INSURANCE COMPANY CONSTRUCTING THE PORTFOLIO CONTENTS 1 4 2
CAPTIVE INSURANCE COMPANY PROFILE The primary purpose of a captive is to act as an insurance vehicle to meet the claims responsibilities of their parent. The risk is taken on the liability side via the underwriting process; therefore the assets must be invested in safe liquid investments in order that they are available to meet any future claims. Profile of a Captive Insurance Company is quite unlike other corporations Investing for Captive Insurers is different from other institutional and private client’s investors 3
CAPTIVE LIFE CYCLE 4 Captives progress through investment stages depending upon where they are in their life cycle Stage 4Stage 3Stage 2Stage 1 Risk/Reward Liquid Securities, High Quality Fixed Income Cash Deposits and Money Market Riskier Assets: Addition of Equities and possibly Alternatives Preservation of Capital: Focus on Asset-Liability matching through Fixed Income Formation Development Maturity Run-off
Investment considerations for a Captive Insurance Company 5
Due to Captive Insurers unique profile, some investment considerations are: What line of insurance is being underwritten Liability profile of Captive insurer (maximum duration) Collateral requirements and any fronting restrictions Regulatory Requirements: permissible assets differ among jurisdictions Investment guidelines different/consistent with parent? Macroeconomic environment 6 The Investment manager needs to work closely with the investment board of the captive to ensure a complete understanding of the captives investment guidelines and objectives. This is key to identifying potential strategies and their weight in terms of risk and expected return.
How to construct the portfolio? 7
SEGMENTATION OF CASH RESERVES 8 Captives acutely aware of future claims are balancing the requirement of minimising risk whilst trying to pick up yield. How do you this? Segmentation of your cash reserves allows each separate classification to be managed to a different strategy. Operating Funds Used to cover claims Highly liquid Available Immediately Operating Funds Used to cover claims Highly liquid Available Immediately Core Funds Used to backstop operating funds Liquid Convertible to operating funds at short notice Core Funds Used to backstop operating funds Liquid Convertible to operating funds at short notice Strategic Funds Longer dated securities Maximising yield whilst minimising volatility Strategic Funds Longer dated securities Maximising yield whilst minimising volatility Projected Investment Returns Investment Time Horizon Captive Insurers Life Cycle Allows Captives the flexibility to deploy different Investment Strategies depending upon their stage of development.
Development Stage of Life Cycle: More predictable liability analysis Asset growth, with some surplus and unencumbered funds Still conservative, but a better appetite for risk Willing to invest in high quality fixed income Example of Portfolio Construction for a Captive in the Development Stage 9 Core Funds Used to backstop operating funds Liquid Convertible to operating funds at short notice Core Funds Used to backstop operating funds Liquid Convertible to operating funds at short notice Corporate Credit Universe >10,000 Bonds Liquidity filters Issues >50m $/£/€ Credit Quality Investment Grade Analyst/FM functional approach Fund Manager Portfolio issuers
Example of an investment portfolio for a captive insurer at the development stage of their life cycle Live case FTSE 100 client 10
RECAP KEY POINTS 11. Captives are different to other corporate entities - Their life cycle impacts their investment requirements and dictates their investment strategy - Their investment considerations differ too e.g collateral requirements and any fronting restrictions Investment strategy is ever evolving and requires the services of an investment manager who understands the captives journey and can provide appropriate and flexible solutions throughout this journey.
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