About Us:
Investment Strategy
Our investment strategy focuses on the twin objectives of preserving the company’s capital and providing a ready source of liquidity. In addition, the investment portfolio can be a value generator for shareholders. We take an opportunistic, risk-reward approach to investing, ensuring that we are always properly compensated for the risk incurred. The portfolio is dominated by fixed income securities with a portion allocated to alternative investments.
An integrated approach ties the investment process to the operational activity of the firm. Asset-Liability Management (ALM) is used to integrate the measurement of both asset and liability exposures to understand net market and liquidity risk to capital. The objective is to provide liquidity and a stable capital base to support our operations.
Investment risk taking is a function of:
- Quality of investment opportunities
- Correlation with other Endurance risks
- Desired level of risk taking and allocation to investments
The return objective focuses on both income and book value growth, relative to risk exposure. Three key metrics are used to measure the performance of our portfolio: operating income, economic (marked-to-market) return and return on capital.
Risk management is an integral part of the process. The amount and level of shareholder equity at risk is a primary investment consideration. Risk is measured using several methodologies; stress scenarios, value-at-risk analysis and rating agency capital models.
Investment income is an increasingly large component of our return on capital and an important source of financial stability. In 2007, net investment income from investment activity of $274 million represented 53% of earnings.
Our investment portfolio is largely invested in mortgage-backed securities, US government and agencies, corporate and asset-backed securities. Consistent with our conservative approach and the repricing of risk currently causing market stress, our fixed income portfolio has been heavily weighted to AAA-rated securities, with almost 90% of our assets invested in AA’s or higher rated. We have biased the portfolio toward AAA-rated and Agency backed mortgage securities and away from corporate securities due to their stable quality and lack of event risk.
Portfolio Statistics as of December 31, 2007
