What are the key features of Baloise’s asset allocation strategy?
The prudent management of investments is one of the most important capabilities that an insurer must possess. By successfully investing the premiums it receives, the insurance company ensures that it can meet its financial obligations towards its customers while making a contribution to its overall profitability. The safety of these investments must be guaranteed at all times. Baloise therefore ensures that its investments are widely diversified across several asset classes such as equities, bonds and real estate. Within each asset class the focus is on high-quality investments that yield consistent returns. The majority of assets are invested in fixed-income securities whose quality is demonstrated by the credit ratings awarded by Standard & Poor’s. 90 per cent of these investments are rated A or higher. Furthermore, Baloise aims to diversify its investments widely across a number of issuers so that a default by an individual borrower would be manageable.
Our equity investments are also focused on high-quality companies, which are characterised by strong sustained profitability that we receive in the form of dividends and capital gains.
This investment strategy enables us to achieve consistent recurring income even in the prevailing low-interest-rate environment. This benefits our customers as well as our shareholders.
What exactly is the relationship between an insurance company’s investments and its liabilities? Can Baloise influence its investment returns in relation to its financial commitments?
The Company’s investments must be carefully matched with its obligations. So-called asset / liability management (ALM) is used for this purpose. This involves matching the cash flows from the Company’s investments with those from its liabilities. The insurer also defines how many investment risks it may take in order to generate a higher rate of return. This must be consistent with the Company’s risk-bearing capacity and risk appetite in each case. In pursuing this strategy, Baloise must ensure that its liabilities are fully covered by investments at all times.
If an insurance company does this successfully, it can achieve and constantly optimise its minimum required rates of return within the prescribed risk limits as well as honouring its long-term commitments to its customers.