Revising Investment Strategy for Property and Casualty Insurance

The following scenario relates to an insurance company operating in the property and casualty sector. XYZ Insurance Corp. has experienced heightened volatility in its investment returns due to recent economic changes and is struggling to meet its reserve requirements. The company has primarily invested in fixed income securities, but the current low-interest-rate environment has made it increa\singly difficult to achieve growth while maintaining risk control.

The board of directors has mandated a comprehensive review of the company’s investment strategy, directing management to assess alternative asset classes that could provide better returns without compromi\sing the liquidity required for claims. As an investment manager at XYZ Insurance Corp., outline your recommendations for the investment strategy revision. Discuss how these recommendations address the company's liquidity needs, capital allocation, and overall risk management. Additionally, consider the implications of diversification into alternative asset classes in light of both current market conditions and regulatory constraints.