Institutional Case Study 3: Life Insurance [not Property-Casualty Insurance] Verify is a life insurance company who would like your help in creating an asset allocation and Investment Policy Statement 'IPS' for its portfolio. Verify has sold and continues to sell in roughly equal amounts fixed annuities (liabilities with predictable size periodic cash payouts lasting for unknown durations) and life insurance policies (liabilities with unpredictable long-term timing but predictable size lump-sum cash payouts). The following information is available regarding Verify and its portfolio. Note the following to assist asset allocation: Verify wants to hold two separate portfolios-one is the ALM Portfolio which needs to satisfy the following requirements by holding only fixed income investments: a) large enough to match the present value of expected future claims, b) enough cash flow yield to meet average annual cash flow needs (the cash flow yield applies to fixed income and total expected return; you can ignore tax effects. . c) minimizes interest rate risk of the match between Assets and Liabilities, .d) has enough in cash to cover potential unexpected (annual) liquidity claims for the current year, and e) only has fixed income investments. The other portfolio is the Surplus Portfolio where the primary goal is to achieve the stated return for Surplus investments (and holds no fixed ncome investments). 1] Determine allocations for the ALM & the Surplus portfolio that meet each of Verify's stated objectives for the respective portfolios. Use the charts given to analyze the portfolios and fill in the answers. You will first want to determine the size of the ALM and the Surplus portfolios. 2] Write an Investment Policy Statement 'IPS' for Verify Institutional Case Study 3: Life Insurance [not Property-Casualty Insurance] Verify is a life insurance company who would like your help in creating an asset allocation and Investment Policy Statement 'IPS' for its portfolio. Verify has sold and continues to sell in roughly equal amounts fixed annuities (liabilities with predictable size periodic cash payouts lasting for unknown durations) and life insurance policies (liabilities with unpredictable long-term timing but predictable size lump-sum cash payouts). The following information is available regarding Verify and its portfolio. Note the following to assist asset allocation: Verify wants to hold two separate portfolios-one is the ALM Portfolio which needs to satisfy the following requirements by holding only fixed income investments: a) large enough to match the present value of expected future claims, b) enough cash flow yield to meet average annual cash flow needs (the cash flow yield applies to fixed income and total expected return; you can ignore tax effects. . c) minimizes interest rate risk of the match between Assets and Liabilities, .d) has enough in cash to cover potential unexpected (annual) liquidity claims for the current year, and e) only has fixed income investments. The other portfolio is the Surplus Portfolio where the primary goal is to achieve the stated return for Surplus investments (and holds no fixed ncome investments). 1] Determine allocations for the ALM & the Surplus portfolio that meet each of Verify's stated objectives for the respective portfolios. Use the charts given to analyze the portfolios and fill in the answers. You will first want to determine the size of the ALM and the Surplus portfolios. 2] Write an Investment Policy Statement 'IPS' for Verify
