Portfolio Construction Strategies for Insurance Companies

As an investment manager for a large insurance company, you are tasked with optimizing the portfolio to meet both the short-term and long-term liabilities of the firm. The company has a mix of life insurance and property & casualty insurance products, which have differing cash flow patterns and liquidity requirements.

Given the current economic environment characterized by low interest rates and increasing regulatory scrutiny, discuss the strategic considerations that you must take into account when constructing the investment portfolio. Your response should include the following aspects:

• Risk management strategies specifically tailored for insurance portfolios.
• The impact of interest rate fluctuations on asset-liability matching.
• The role of alternative investments in achieving the portfolio objectives.
• Consideration of regulatory requirements and their effects on the investment strategy.

In your discussion, provide recommendations on asset allocation and illustrate how your strategy addresses the firm’s specific objectives in managing liabilities while balancing risk and return.