Answers to the European Commission on the ... - Eiopa - Europa

should take in<strong>to</strong> account <strong>the</strong> time horizon of <strong>the</strong> technical provisions
covered and <strong>the</strong> necessity of <strong>the</strong> limitation of <strong>the</strong> liquidity risk.
Portfolio selection should be governed by <strong>the</strong> following principles:
• <strong>the</strong> assets shall be chosen in accordance with <strong>the</strong> contractual
obligations (e.g. endowment policies vs. term assurance)
entered in<strong>to</strong> with policyholders. In <strong>the</strong> case of a potential conflict
of interest, <strong>the</strong> insurance undertaking should ensure that <strong>the</strong>
investment is made in <strong>the</strong> sole interest of <strong>the</strong> policyholders and
<strong>the</strong> beneficiaries;
• investment in assets which are not admitted <strong>to</strong> trading on a
regulated financial market must be kept <strong>to</strong> prudent levels;
• adequate asset-liability management;
• adequate diversification and dispersion of investments, avoiding
excessive reliance on any single asset, issuer, group of
undertakings business sec<strong>to</strong>r or geographical area and
accumulations of risk in <strong>the</strong> portfolio as a whole;
• limitation <strong>to</strong> prudent levels of investments which are less liquid;
• efficiency and cost control
Definition of <strong>the</strong> investment strategy on all assets
9.145 The investment strategy shall be drawn up in writing and approved by
<strong>the</strong> Board of Direc<strong>to</strong>rs and is subject <strong>to</strong> internal control. It shall clearly
identify:
• <strong>the</strong> strategic allocations (<strong>the</strong> determination of <strong>the</strong> asset
allocation, including ALM considerations - i.e. asset mix across
<strong>the</strong> main investment categories);
• <strong>the</strong> return <strong>to</strong> be targeted and <strong>the</strong> way in which insurers exercise
<strong>the</strong>ir discretion with regard <strong>to</strong> with-profits life business;
• <strong>the</strong> allocation limits by counterparty, business sec<strong>to</strong>r, geography,
type of instrument and currency;
• <strong>the</strong> use of financial derivatives as part of <strong>the</strong> general portfolio
management process or of structured products that have <strong>the</strong>
economic effect of derivatives and securities lending;
• <strong>the</strong> liquidity approach, including a liquidity contingency plan and
liquidity stress testing;
• <strong>the</strong> admitted investments and any restrictions imposed on <strong>the</strong>
investment policy;
• <strong>the</strong> methodology, benchmarks and frequency of performance
measurement and analysis.
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