Professional liability insurance company enhanced asset allocation and reduced administrative complexity.

One of our longstanding clients, a professional liability insurance company composed of five member hospitals and healthcare entities that have combined their self-insured assets, was facing multiple challenges related to its investment portfolio and to its administrative obligations.

With intimate knowledge of the organization’s goals and circumstances, we designed a new strategic asset allocation (SAA) through a roles-based framework, dividing the portfolio into a multi-asset growth strategy and risk-reducing assets. This solution was designed to minimize risk by emphasizing high-quality instruments and diversification, maintaining appropriate levels of liquidity to help the company pay insurance claims, and taking on the administrative burden of consolidating accounting statements and meeting state regulatory guidelines.

The new multi-asset growth strategy positioned the portfolio to pursue fleeting return opportunities through a dynamically managed mix of global equity, global fixed income, and real assets strategies, which improved the portfolio’s implementation efficiency and greatly expanded its opportunity set. The risk-reducing strategy consisted of more diversified fixed income assets (e.g., absolute return and low duration bonds), as well as a directly invested custom hedge fund strategy that was structured to complement the risk exposures across the entire portfolio. The solution is depicted in Exhibit 1.

The solution enabled the company to benefit from greater diversification and breadth of investment strategies, better positioning the portfolio to meet its desired outcomes. In addition to mitigating interest-rate risk, the new asset allocation strategy increased the portfolio’s expected 10-year return by 66 basis points relative to the legacy allocation, while only increasing the expected 10-year expected standard deviation by 27 basis points.1 We also provided customized reporting that showed values at the total portfolio level, and we created customized sub-account reporting for each of the member organizations. We automated the entire process by giving the organization access to a customized website that allows them to track and manage investment details at both the sub-account and consolidated level. This greatly reduced the staff’s administrative burden.

This two-pronged approach enabled the investment committee to focus their valuable time on long-term strategic decisions and to monitor the investment decisions that we make on their behalf–while resting assured that the organization would have sufficient cash flows to cover its member organizations’ claims.

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Zac Zacharia (Managing Director) has been assisting clients to create wealth and secure their futures for over 14 years.

He is also an accomplished presenter and educator

Co-authoring the popular investment book, Property vs Shares.