While the asset allocation strategy (SAA) provides a blueprint for the portfolio, a customized benchmark articulates the blueprint and is an important informational tool for managing and monitoring performance.
Because a broad market index is unlikely to accurately reflect the characteristics of an insurance company’s investment portfolio, a customized benchmark is an essential component in optimizing an investment strategy.
A well-constructed benchmark allows a company to evaluate the value added by the portfolio management team and provides feedback on the risks in the portfolio. If the benchmark is not constructed appropriately, it fails to provide useful information, and can lead to a suboptimal portfolio that is not properly aligned with goals, needs and risk preferences.
Conning’s Benchmarking Process
Conning develops customized benchmarks for insurance companies, supported by our financial modeling and strategic asset allocation analyses. Our process ensures that the benchmark is consistent with the critical elements of the company’s asset allocation strategy, including:
- The duration and maturity structure of the fixed income portfolio
- Required spread targets
- Credit quality
- Sector allocations
- Allocations to high yield bonds, convertible bonds, equities and alternative investments
To learn more about Conning’s customized benchmarking process or other strategic advisory services, please contact us.