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 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. 65% of the portfolio is comprised of cash and equivalents, government, government guaranteed corporate, agency, and agency RMBS securities.
With respect to generating value in the investment portfolio, risk taking is a function of:
- Quality of investment opportunities
- Correlation with other Endurance risks
- Desired level of risk taking and allocation to investments
Our 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, including stress scenarios, value-at-risk analysis and in-house impairment models.
Investment income is a large component of our return on capital and an important source of financial stability. Year-to-date through September 30, 2009 net investment income totaled $225 million.
Our investment portfolio is largely invested in U.S. Government and agency, mortgage-backed, corporate and asset-backed securities. Consistent with our conservative approach, our investment portfolio remains heavily weighted to AAA-rated fixed income securities, with 85% of our total assets invested in AA or higher rated fixed income securities. In addition, our interest rate exposure is very low with our fixed income portfolio duration at 2.3 years at September 30, 2009.
