http://creativecommons.org/licenses/by-nc-nd/4.0/legalcode application/pdf 538799 bytes 2024 Keywords: insurance, investment, strategies info:eu-repo/semantics/conferenceProceedings TRANSFORMATION OF THE INSURANCE MARKET - RESPONSES TO NEW CHALLENGES startpage: 381 endpage: 395 University of Belgrade, Faculty of Economics and Business Božović, Miloš PERFORMANCE EVALUATION OF OPTIMAL INVESTMENT STRATEGIES IN INSURANCE eng he insurance industry is pivotal in the global economy, serving as a fundamental pillar of financial stability. Central to insurance companies’ operations is managing their investment portfolios, which sustains their financial viability and significantly influences their capacity to fulfill their contractual obligations and achieve long-term growth objectives. As such, evaluating and optimizing investment strategies within the insurance sector is paramount in ensuring the industry’s resilience and competitiveness amidst evolving market dynamics and regulatory landscapes. Over the years, insurance companies have grappled with the complexities of investment decision-making, striving to balance risk and return while navigating economic, financial and regulatory challenges. Adopting optimal investment strategies has become imperative for insurers seeking to enhance their profitability, liquidity and solvency positions in an increasingly competitive marketplace. Against this backdrop, this chapter examines the performance of various investment strategies to offer actionable insights and practical recommendations for industry stakeholders. We evaluate and compare optimal investment strategies for European insurance companies, drawing upon quantitative analysis and empirical evidence to assess their efficacy and suitability under different market conditions. By scrutinizing the performance of diverse investment approaches that insurance companies could employ, this research sheds light on the critical determinants of success and failure in portfolio management within the insurance industry. Specifically, we implement a passive benchmark and an optimal investment portfolio strategy and cross them with two volatility timing strategies based on realized variance and downside semi-variance. Our test assets consist of European government bonds, corporate bonds and equity, representing the typical content of investment portfolios of European insurance firms. We compare all approaches based on four performance metrics: spanning regression alpha, Sharpe ratio, Sortino ratio and Omega ratio. Our results highlight the benefits of both optimization and volatility management and have important practical implications for investment portfolio allocation. The remainder of this chapter is organized as follows. Section 1 provides a literature review. Section 2 presents the methodology. Section 3 describes the data. Empirical results are given in Section 4. Section 5 concludes. This research is supported by the Ministry of Science, Technological Development and Innovation of the Republic of Serbia by the Decision on the transfer of funds to finance the scientific research work of teaching staff at faculties in 2024, No. 451-03-65/2024-03/200097 of 5 February 2024. https://phaidrabg.bg.ac.rs/o:35876 ISBN: 978-86-403-1836-5