Investment Strategy in EMDEs (emerging markets and developing economies) from a portfolio investor perspective

1. Investment Strategy-
Insurance Asset owner
(Portfolio Investor)
“Securing the future and sustaining the present”

2. External Trends in EMDEs
• Social trends:
• Demographics: youths population is large relative to other age groups
• Transparency: low
• Poverty/ inequality: high
• Diversity: low
• Economic trends:
• Capital flows: on the rise
• Inflation: high
• Asset class availability: limited
• Political and regulatory:
• Governance: weak
• Tax policies and transparency: unfair

3. External Trends in EMDEs cont’d
Acting as an Insurance asset owner in EMDEs:
• The social environment in EMDEs is not fully aware of the products of the insurance
companies and how it’s engineered to benefit the insured person
• Economically, the insurance products help support people in EMDEs specially that in
developing countries the income is relatively low in addition to weak pension plans
and payments that are resulted from weak administrative regulations and low
transparency as well as unfairness distribution of wealth
• Politically and legally, in EMDEs give a good room for insurance companies to benefit
from the unstable environment by ensuring the insured person of his potential
future insurance payments that will lessen the burden on them

4. Key players in Insurance Company
In the insurance company there are key players with specific and crucial
roles and responsibilities
• Board: ensures the investment strategy is right for the organisation
• Investment committee: depends on the complexity of the projects, the
committee is involved in order to work on different scenarios to come up
with an optimal investment strategy
• Investment professionals: They implement the investment strategy
through day-to-day activities
• External stakeholders: They indirectly manage the portfolios or the
investments through direct executions

5. Vision ( as an asset owner)
• The insurance industry has started to be digitalized “insurtech” and that
is to provide automated products “customized” based on the assessment
and review of the client’s profile
• The ESG factors can create a more competitive market and more
developed
Source: sustainableinvest.com

6. Investment principles
• EMDEs markets are considered to be inefficient and that is due to low financial
literacy as well as low literacy rate. This means that markets are not driven by the
availability of information/ transparency/ information impact as far as the emotions
and sentiments of the stakeholders
• Diversification is an important key to consider while investing in addition to active
investing. EMDEs are known for relatively higher volatility than developed countries
and although this gives the room for higher returns; however, the developing
countries have a high risk free rate of return compared to developed countries and
for that reason it’s important to consider higher returns through active investing
since the asset owner is willing to tolerate higher risk
• According to the insurance industry nature, it’s believed that they have certain
preferences in the investment products such as long term, fixed income securities;
nevertheless, it depends on the nature of the product offered to the client
• Asset management can be in-house or outsourced; it depends on the assets owned,
the investment professionals and the size of the business

7. Strategy
Based on the risk profile tolerance, suitable asset classes and sustainable long
term investment opportunities; the following is believed to be fulfilling the
criteria for the “Insurance Company”
• Asset classes: debt instruments can offer sustainable periodic payments for
long term considering high credit quality instruments. As for more sustainable
alternative investments in EMDEs, there are infrastructure and real estate
projects
• Sectors: The main sectors that have room for development and the penetration
rate is still low in EMDEs are: financial services, healthcare, energy, utilities and
tech
• It’s worth mentioning that venture capitals and private equity funds are still
growing in the EMDEs; this means there is more room for diversified and
sustainable investments
• Time horizon: Insurance companies obligations are relatively long term with
buckets from 5-10 years to more than 10 years

8. Performance evaluation
• The board is the one evaluating the performance of the investment
strategy adopted and followed
• It evaluates the result of the investment strategy covering the obligations and
achieving the target profit
• It evaluates the efficiency of the investment professionals in implementing the
strategy
• The most important evaluation is comparing the companies performance
relative to the market competitors and comparing the investments return to
other investments in order to determine the opportunity cost