Investment Strategy for Insurance Company in Low-Interest Rate Environment

XYZ Insurance Company, a medium-sized insurance firm with a diverse portfolio of life, health, and property indemnity insurance products, is looking to revamp its investment strategy in light of changing regulatory frameworks and evolving market conditions. The company's current investment portfolio, primarily in fixed-income securities, has yielded subdued returns amidst low interest rates. Concurrently, the company faces increasing liabilities due to aging policyholders and longer life expectancies, compelling a reevaluation of its asset-liability management (ALM) approach.

As a portfolio manager, you are tasked with developing an investment strategy that addresses the following objectives:

• Optimize returns in a low-interest-rate environment
• Maintain adequate liquidity to meet policyholder claims
• Ensure compliance with regulatory capital requirements
• Diversify the investment portfolio to mitigate risks associated with market volatility
• Align the asset-liability duration to ensure long-term financial stability

In your response, outline a comprehensive investment strategy that you would recommend for XYZ Insurance Company, considering the unique challenges faced by insurance companies in managing their investment portfolios.