One of the common themes we observed in large institutional fixed income investment portfolios examined subsequent to the financial crisis of 2008 is that most of these portfolios lacked transparency with regard to the specific variables affecting overall portfolio risk. As a result, some institutions built up large concentrations to different types of risk with no tools or methodology to track these concentrations on a periodic basis.
By tracking specific variables affecting portfolio risk, it is possible to “slice and dice” the same portfolio from different points of view to gain a better understanding of the types of risk inherent in the portfolio. Our process involves the identification of these specific variables and then understanding the degree to which they contribute towards portfolio risk at any point in time.
As Investment Specialists, Joseph Prakash, CFA and Herb Jacobs review and evaluate investment portfolios, determining the value of individual investments and assessing risks inherent in the overall investment program of an insurance company or bank. These services include interpretation of statutes and regulations, contractual language, cash flow analyses and appropriate accounting treatment.
Joseph and Herb each bring more than 25 years of experience with investments and corporate securities. Both individuals have served as Managers at the NAIC Securities Valuation Office in New York City and have gained the bulk of their investments expertise working for large corporate banks in New York. As a result of their prior experience in banking, the NAIC, and the Securities Valuation Office, they are uniquely qualified to analyze and opine on the quality of insurer investment portfolios either as part of the examinations process or otherwise.
With the use of Bloomberg and strong analytical skills on Excel, Joseph has perfected a technique to analyze and opine on the quality of insurer investment portfolios. As insurer investment portfolios have become more complex, this service will have much value for insurance and bank regulators.
Hand in glove with the NAIC’s Risk Focused Examination process, Joseph has created a three-pronged technique that meshes well with Phases 1 and 2 of the NAIC’s process for Risk-Focused Examinations. In addition to reviewing the insurer’s use of derivatives and asset-liability management, this three-pronged process involves portfolio analysis, the conduct of executive interviews and the review of investment information provided by the insurer to do a Phase 3 level Risk Assessment and Phase 4 level identification of Residual Risk. If necessary, JP Consulting would also conduct Phase 5 level Verification and Testing.
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