How Should Reinsurance Reserves Be Invested?
Reinsurance assets should not be managed like a dealer principal's personal brokerage account. They exist to support insurance obligations.
Reinsurance assets should not be managed like a dealer principal's personal brokerage account.
They exist to support insurance obligations. That changes the investment objective.
Start With the Liabilities
Before asking:
Ask:
- When are claims expected?
- How much liquidity is required?
- What restrictions apply?
- What is the duration of the liabilities?
- What level of volatility can the company tolerate?
Asset Allocation Matters
Depending on the structure and applicable requirements, a portfolio might contain combinations of:
A conservative program might use something resembling a 90/10 allocation. Another might use 80/20. Another could use 60/40.
Match Risk to Purpose
If the company needs substantial liquidity for claims, investing aggressively in volatile assets may create a mismatch.
Imagine needing $1 million for claims during a market decline when the investment portfolio is down 30%.
That is not the moment to discover that the portfolio was too aggressive.
Watch Investment Fees
A difference of 1% annually on a large portfolio compounded over decades can become enormous. Ask:
- Who manages the money?
- What are the fees?
- What benchmark is being used?
- What is the net return?
- What risks are being taken?
- Can the dealer change managers?
The Bottom Line
The goal is not maximum return. The goal is:
Investment policy should reflect the liabilities—not the dealer's appetite for the stock market.
When was the last time someone independently reviewed your reinsurance program?
Confidential. No obligation. There is no charge for the initial assessment. You may discover an opportunity, a problem, or that your program is exactly where it should be. But you’ll know.