Universal Insurance Company is an insurance mega-store selling life, property, and casualty insurance policies in all forty-eight counties of England. The life insurance subsidiary sells products under the UniLife label, and the property and casualty subsidiary sell policies under the UniPC label.

UniLife's total assets are approximately £10 billion, which results in a surplus of £I billion. As with most life insurance companies, UniLife’s asset portfolio is segmented to cover the products sold and to achieve surplus growth to expand business. The segmentation of portfolio assets is a direct result of the increased competition in the life insurance industry and represents an attempt by UniLife to maintain an acceptable spread over their crediting rate of 5% and to more effectively price its products. Total expenses associated with business operations average 2% of assets. UniLife segments its asset base into three main asset classes: short-term/cash-like, long-term fixed-income, and equity instruments. The continued low interest rate environment, as well as improvement in equity markets, has strengthened the quality of UniLife's asset base. The following are statements made during a recent conversation by UniLife's management regarding the portfolio segments:

"The main purpose of the short-term portfolio is to meet the liquidity requirements of our life insurance

and annuity products. Hence, we expect this segment to be invested in assets exceeding or equivalent

in safety to 90-day high-grade corporate commercial instruments. The improvement in overall quality of

corporate paper has been encouraging."

"The purpose of our long-term, fixed-income portfolio is to generate sufficient total returns that not only cover the crediting rate, but add to our net interest margin. Investment grade corporates (i.e., rated at least Al) with maturities ranging from 10—20 years are representative assets for this portfolio segment. Again, the improvement of corporate issues is encouraging".

"The stock portfolio segment exists to provide longer-term growth in company surplus in the hopes of not only improving our financial condition, but also to better meet competitive pricing objectives, The majority of state regulations allow for ample investments in mid- to large-cap domestic equities, but only a small proportion (less than 5%) in international securities, Hence; the equity portfolio should generate returns exceeding the appropriate mid-to-large cap equity indexes such as the S&P MidCap or S&P 500 indexes. The equity market trend has also been positive.”

Required:

1. Construct the risk and return objectives portion of an investment policy statement for UniLife ⁱs portfolio segments.

1. Construct the constraints portion of the investment policy statement for UniLife. Address the time horizon, liquidity, legal/regulatory, tax, and unique circumstances constraints. Address the time horizon and liquidity constraints for each of UniLife's portfolio segments.