Insurance Portfolio Risk and Return ModelFree Financial Model Download

This portfolio model manages insurance investment holdings by matching asset duration to liability duration, forecasting investment income, and stress-testing credit and interest rate risk. Build asset allocation across fixed income (government, corporate, MBS), equities, and alternatives; apply duration constraints; and calculate return sensitivity to spread widening, default scenarios, and rate changes.

The workbook tracks fixed income holdings by maturity and credit rating, calculates portfolio duration (weighted average time to cash flow), applies duration matching to liability duration (insurers must match long-duration liabilities with assets). Credit risk: default probability assumptions by rating (AAA 0.1%, BBB 1–2%, BB 5–10%), loss-given-default (typically 40–60%), and expected loss by holding. Dividend and interest income forecasts on known coupons and yields. Mark-to-market sensitivity: 1% parallel rate shift impacts portfolio value by duration × 1% (e.g., 5-year duration portfolio loses 5% value if rates rise 100 bps).

Used by insurance CFOs, asset liability managers (ALM), and portfolio managers ensuring compliance with prudential ratios (Solvency II in Europe, NAIC in US). The model reveals concentration risk and illiquidity drag: if liabilities are 8-year duration but 30% of assets are 2-year, reinvestment risk persists. Credit spread compression (tightening) benefits mark-to-market but reduces prospective yield. Benchmarks: insurance portfolios typically 60–80% fixed income, 10–20% equities, 10% alternatives; duration matched within ±1 year to liability duration.