Original scientific paper
https://doi.org/10.18045/zbefri.2023.2.361
Optimizing insurers’ investment portfolios: incorporating alternative investments*
Mihovil Anđelinović
orcid.org/0000-0003-2061-0693
Filip Škunca
orcid.org/0009-0008-7630-2191
Abstract
The challenge posed by historically low-interest rates is particularly significant for
insurance companies, especially those specializing in life insurance. This study
investigates a potential solution by analyzing the impact of introducing lowcorrelation alternative investments into traditional investment portfolios. The
research employs two methods: firstly, optimization using the Markowitz model,
and the multicriteria optimization model is utilized to test the advantages of
including alternative investments. Secondly, the study assesses the effects of
interest rate fluctuations on both traditional and alternative investments through
the Vector Autoregressive (VAR) model. The results from both optimization models
during the analyzed period confirm the hypotheses, indicating that integrating
alternative investments positively influences portfolio returns, risk management,
and overall efficiency. Additionally, the study explores the influence of interest rate
changes on domestic stocks, bonds, hedge funds, and managed futures. While there
were theoretical expectations of a significant impact, confirming that interest rate
changes have a stronger effect on bond and stock yields compared to hedge funds
and futures yields remains inconclusive. Nevertheless, the research underscores
the significance of diversifying investment portfolios with low-correlation
alternative assets in the face of a low-interest rate period. These findings offer
valuable insights for insurance companies seeking strategies to navigate the
complexities of financial markets.
Keywords
: insurance companies; alternative investments; interest rates; investment portfolio; portfolio optimization;
Hrčak ID:
312452
URI
Publication date:
28.12.2023.
Visits: 288 *