SWOT Analysis Summary (Sample) Analysis...SWOT Overview 2 o Strategic Asset Alliance has reviewed the documentation provided by XYZ thus far and developed this SWOT Analysis of the

SWOT Analysis Summary (Sample)

© STRATEGIC ASSET ALLIANCE, INC. Document not to be reproduced without the explicit consent of SAA.

SWOT Overview

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o Strategic Asset Alliance has reviewed the documentation provided by XYZ thus far and developed this SWOT Analysis of the investment process in order to serve as a background for SAA’s existing assignment.

o This SWOT Analysis is not designed to be all-inclusive but merely a high-level view of the investment process.

o We highly recommend a discussion with XYZ in order to better understand the key issues.


SWOT – A Blueprint For Success

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Investment Process

Value Chain

Strategic Asset

Allocation

Investment Policy &

Guidelines

Peer Group

Analysis

Investment Manager

Evaluation & Selection

Portfolio Monitoring

Performance Measurement

& Analysis

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

Investment Policy

• Investment Policy has many of the basic requirements, that make it easily operational from the investment manager’s point of view.

• Performance reporting should be specifically stated to be according to GIPS standards with additional requirement for meeting investment income goals.

• No minimum credit rating for any given bond in Core Portfolio.

• Diversification limits set irrespective of credit rating/ state concentration (for municipals).

• No industry concentration limit for fixed income or equity portfolios.

• No specific exclusions, except as required by WA law.

• We would recommend that only investment grade fixed income securities be part of the Core Portfolio with all other investments part of the Capital Growth Portfolio.

• There are several other opportunities for consideration that will arise from future discussions.

• New investment products may/may not be adequately handled under the existing policy.

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Strategic Asset Allocation

• Target and ranges have been set for major asset classes.

• Minimum average credit rating of AA is a bit higher than peers. Given the ongoing voluntary decrease in ratings within corporate indices and insurers’ need for sufficient investment income, we have seen many insurers move to AA- or A+ minimum average ratings. There is very little increase in expected default by this change.

• A formal asset allocation should be conducted that takes into account taxable v tax-exempt mix, as well as the size and composition of the Capital Growth Portfolio.

• Most peers have fixed income portfolios more weighted to ‘spread’ product, which provide superior market yields to the current allocation.

• Analysis of municipal allocation requirement can provide a tax efficient comparison of AMT v Regular Tax.

• Portfolio book yield continues under pressure from low interest rates.

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Peer Group

• Overall portfolio much more conservative than peers in SAA Structured Peer Group (Personal Lines Focus – $500MM to $2.5B invested assets) means less risk than peers.

• Overall portfolio much more conservative than peers in SAA Structured Peer Group (Personal Lines Focus – $500MM to $2.5B invested assets) means less return than peers.

• BBB/Surplus, High Yield/Surplus, Common Stock/Surplus and Risky Assets/Surplus all within lowest quartile of peers. However, it is important to consider impact of Real Estate holdings in the analysis.

• Investment income can be improved by moving towards a more yield oriented, yet still investment grade approach.

• Capital Growth Portfolio may provide superior long term risk adjusted returns than current size and composition.

• Any increase in Capital Growth Portfolio or in credit risk within the Core Portfolio should be stress tested in order to meet the Risk Based Capital minimums as required by the Investment Policy.

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Investment Manager Responsibility & Evaluation

• Portfolio is managed internally, which can provide good communication and feedback with the investment manager, while typically keeping direct cost of investment management lower than external manager fees.

• By definition, internal investment management for all but large insurers usually has inherent deficiencies, including:

• Fewer advanced analytic resources and less credit coverage than external managers

• Less access to broader asset classes and securities (within and outside core fixed income)

• Greater imbedded trading costs

• For relatively efficient asset classes, we would highly recommend a passive, low cost ETF/Index Fund. The more efficient a market is, the lower the probability that consistent risk adjusted value can be added with active management.

• For other asset classes, consider separate accounts given mandate size.

• Unless an insurer is large enough to support a varied investment staff, planned succession or unplanned absences can become problematical.

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Portfolio Benchmarking, Monitoring, & Performance Measurement

• Current Investment Committee Packet provides good general overview of quarter’s performance.

• No measure of risk adjusted performance (e.g. Sharpe ratio). Policy requirement of before and after-tax performance not implemented in Investment Committee Packet.

• No performance attribution to help explain under/over performance and their overall effectiveness with respect to the benchmark.

• No measure tracking portfolio book yield overtime, as well as expected.

• Taxable fixed income benchmark too heavily weighted towards low yielding UST. Should be customized with more investment grade yield bias.

• Consider fixed income portfolio stress testing on investment income (reinvestment risk) as well as market valuation.

• Consider greater variety of historical reports, including periodic peer analyses. (i.e. What additional portfolio exhibits would better serve the company in determining manager effectiveness with respect to overall enterprise goals and objectives?)

• Performance should be evaluated on a risk-adjusted, total return and yield basis combined across all asset classes and should be tied to the company’s overall enterprise goals and objectives.

• Portfolio should be compared to benchmark on key measures such as YTM, YTW, Book Yield, Duration, Convexity and Quality.

• What issues should be addressed during the portfolio monitoring process and are not being adequately addressed today?

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⚫ Strategic Asset Allocation Analysis

o Per SAA’s assignment, this analysis and detailed recommendation will cover many of the issues noted herein.

⚫ Investment Policy “Best Practices”

o Consider the changes noted herein, as well as other minor changes.

o Major changes would relate to decisions made after the asset allocation analysis is discussed and an educational session is provided, as requested.

⚫ Investment Manager Responsibility & Evaluation

o Per SAA’s assignment, consider a manager for a $40 million mandate, within the approved asset allocation and revised investment policy.

⚫ Portfolio Benchmarking, Monitoring & Performance

o Per SAA’s assignment, recommend improved benchmarks tied to the approved asset allocation.

o Consider improvements in quarterly reporting (some of which will be available via Clearwater Analytics implementation).

Initial Recommendations

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SAA SOLUTIONS:CUSTOM SERVICE FOR INSURERS <$25MM

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SAA Solutions: Low-Cost Service for Your Insurance Co.

Vanguard Group

Low or No-Cost Brokerage Services

Access to NAIC-Designated Bond ETFs

Broad Access to Vanguard andNon-Vanguard Funds & ETFs

Strategic Asset Alliance

All Consultants are Former Sr. Investment Executives at Insurers

We Work Exclusively with Insurance Organizations

Independent & Unbiased

Active in A.M. Best, NAIC, NAMIC, ACLI and Other Industry Groups

SAA Solutions Provides Customized Investment Consulting for Insurers <$25MMfor an Independent Investment Process Utilized by Larger Insurers,

but at a Fraction of the Cost


SAA Solutions Overview

o Insurance companies with an investment portfolio <$25MM will open a Vanguard Brokerage account.

o Both Vanguard and non-Vanguard funds and ETFs are available at low or no-cost.*

o SAA utilizes Vanguard’s leading technology for the efficient management of an insurer’s investment

portfolio.

o SAA would be responsible for executing trades to Vanguard upon your insurer’s approval.

o SAA Solutions provides all of the following services:

➢ Strategic Asset Allocation Analysis

➢ Standardized Investment Policy Generation

➢ Quarterly Trade Execution

➢ Performance Monitoring

➢ Quarterly Review Calls

*Insurers are responsible for applicable commissions and fees, as well as expenses disclosed in the fund or ETF prospectus.


What Services Do You Receive?

Summary of Deliverables

Strategic Asset Allocation Analysis

Advice on the current investment asset allocation and risk profiles, subject to current insurance regulations, every two years or as material business changes occur.

Investment Policy Generation

SAA will assist client in developing a policy utilizing SAA’s “Best Practices” templates.

Performance Monitoring

Ongoing monitoring of investment portfolio holdings and risks, based upon recommended benchmarks.

Quarterly Review Call

Review and analysis of your portfolio’s quarterly performance with the Board, Investment Committee and/or senior management via conference call.

Quarterly Trade Execution

SAA executes quarterly trades via Vanguard Brokerage Services®, as necessary, to re-balance portfolio if outside of policy limits:

SAA notifies client up to one week in advance of pending trades. SAA will execute trades unless client intervenes

or

Client provides written approval of SAA recommended rebalancing trades. SAA executes trades after approval.


Key Benefits of SAA Solutions

⚫ Time and Cost-Effective Expertise

o Investment expertise from SAA’s Principals, all former Senior Investment Executives in the

insurance industry, at a fraction of the cost of an inhouse investment professional.

o Similar investment process as utilized by much larger insurers.

o Staff time saved on a very specialized, time intensive activity.

o Supplemental to your insurer’s current governance structure.

⚫ Independence

o We have no conflicts of interest nor vested interested in the trades you approve, as you

will have access to Index Funds and ETFs from various providers.

o Since we have no vested interest in the trades you approve, we can recommend the optimal trades to achieve the best results.

⚫ Access to NAIC-Designated Bond ETFs

o Accessible Bond ETFs will meet NAIC’s approved criteria for Systematic Accounting, which

allow for ETFs to use statutory accounting treatment similar to holding a bond.

Documents

SWOT Analysis Summary (Sample) Analysis...SWOT Overview 2 o Strategic Asset Alliance has reviewed the documentation provided by XYZ thus far and developed this SWOT Analysis of the