Many investors know, or have heard that asset allocation (or portfolio design) accounts for over 90 percent of portfolio performance. But what kind of performance is it delivering? And what kind of performance does an insurer need? Is the objective to minimize risks or maximize return?
The foundation of traditional asset allocation is the potential to achieve a specific return for a given level of targeted risk. While this may be enough for a different type of investor, it has not been shown to be comprehensive for insurers. If a targeted return is achieved, does that mean the company objectives are achieved? And if market challenges occur, will the portfolio weather the storm?