From “known unknowns” to quantified risks: enhancing portfolio construction & rebalancing with stress & scenario testing

This article was produced by NEAM as part of their valued industry partnership with Insurance Investor.

Steep, unrealised investment losses during the COVID-19 pandemic and the rapid rate increase in 2022 have led insurers and some regulators to refocus on stress and scenario testing. This article explores metrics for quantifying losses during periods of stress, suggesting that incorporating them into portfolio construction and rebalancing can lead to more informed investment recommendations that better align with insurers’ risk-adjusted return preferences.

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