Suva's investment strategy
In order to fulfil its statutory obligations, Suva has designed an investment strategy that is based on a long-term outlook and broad diversification. It also takes into account the company's objectives with respect to sustainability.
Short and succinct
Suva's investment strategy is designed to achieve the level of return required by law. It does this by combining low-yield, low-risk investments like government bonds with high-yield, high-risk investments such as shares.
Suva's investment strategy
Suva's strategy is to invest in a blend of safe and high-yield asset classes to create an appropriately balanced portfolio. Around half of its assets are invested in government and corporate bonds and loans, with a further 30% in shares.
Risk and yield
The return the company needs to achieve through its investments is determined by its intended purpose as prescribed by law. In order to achieve this return in a macroeconomic environment, the investment strategy must be designed in such a way that investments are made across a range of asset classes with different yield expectations. But the higher the expected yield of the asset class, the higher the risk of the investment. This means that, although higher returns can be expected from shares than from government bonds, the risk of making a loss is also higher.
Below, you can see which asset classes can be combined together to form a portfolio that achieves the required return. The higher the return needed, the fewer low-risk investments – in this simplified case, bonds – and the more high-risk asset classes – shares – must be included in the portfolio. Where the return needed is lower, for example 0.5%, the portfolio can, in this simplified example, be comprised primarily of bonds. If a higher yield of, for example, 3.0% were required, bonds would not give a high enough return, so the company would need to invest more heavily in shares. The aim is to find the optimum balance between risk and return. In reality, there are other asset classes in the investment portfolio alongside shares and bonds, with a specific balance of risk and return.
Suva's strategic portfolio
Suva's strategy is designed around a long-term outlook and broad diversification. This gives the company a balanced investment portfolio. Around half of its assets are invested in interest rate and credit investments, almost 30% are invested in shares and private equity, around 13% are invested in real estate and real estate funds, and the remainder in other alternative investments. This strategy enables Suva to achieve the required return with the least possible risk over the long term. Low-risk, fixed-interest investments alone would not be enough to achieve the return required.
Three factors facilitate this investment strategy:
- Suva's legal mandate and stable insuree base enables it to take a long-term approach.
- Its premium income covers ongoing payments for pensions and short-term benefits. There is a very little risk of having to sell long-term illiquid assets at low prices due to a short-term need for liquidity.
- The company's underlying commitments – pension payments – are of a long-term nature.