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Investment Guidelines
Our insurance company investments are managed according to conservative guidelines overseen by the Investment Committee of the Board of Directors. Because our top priority is maintenance of FSA's Triple-A financial strength ratings, the primary investment objective is to grow adjusted book value by generating an optimal level of after-tax investment income, while preserving capital and maintaining adequate liquidity to meet our obligations to policyholders.
Eligible investments are generally limited to U.S. government and agency securities; state, municipal (including not-for-profit) and corporate obligations; high-grade commercial paper and other money market or deposit instruments, including money market preferred stocks; and mortgage-backed and asset-backed securities in sectors approved for FSA insurance. A large majority of our investments are tax-exempt. We generally do not invest in derivative instruments.
We seek to maintain an average credit rating in the Double-A range. Rated securities must generally be in the Single-A range when purchased, based on the lower of Moody's or S&P ratings. At least 90% of our investments in the mortgage sector must be ultimately insured or guaranteed by the U.S. government or its agencies or rated Double-A or Triple-A. Short-term investments should have A1/P1 or equivalent ratings.
The guidelines impose additional restrictions that preserve liquidity, maintain appropriate duration, prevent excessive concentrations by issuer, industry, geography or guarantor and minimize currency risk.