and OIL Casualty Insurance Limited, has changed its already highly effective investment strategy.

The companies have $3.5 to $4.0 billion under investment management and expect to gain higher returns from these changes.

OIL's investment strategy has always differed significantly from that of most insurance companies, due to the nature of the company's business. OIL operates as a mutual servicing the needs of the energy industry and its 61 members/shareholders are all major international companies in the petroleum and energy sectors.

Losses are infrequent, but when they occur they can be gigantic, so OIL does not need to keep short term reserves but needs a large pool it can call on when required. It also means members receive large dividends from the pool in years when no major losses have occurred, dividends that can sometimes be larger than the premiums they have paid that year.

Roger Paschke, senior vice president and chief financial officer, has charge of the investment programme for the group. He explained the investment strategy is a mix of equities and fixed income.

"The mix we have selected provides the best growth opportunities combined with the best liquidity,'' he said.

The mix is run at around 50 percent each of equities and fixed income. This is a higher proportion in equities than most insurance companies would have. An insurance company normally may have between ten and 20 percent in equities, OIL's allocation looks more like that of a pension fund.

For some years the fixed income portion has been divided into about 15 percent international and 35 percent US. One of the changes OIL has now made is to place the whole 50 percent fixed income into global fixed income.

"We ran a pilot portfolio in global fixed income and it worked very well for us. There are not many institutional investors going in this direction now, but I think that in two to five years we will see a lot of portfolios like this,'' said Mr. Paschke.

The transition has involved adjusting the asset allocation strategy from a US/non-US mix to global, with a broad global benchmark in Lehman Global Aggregate. The investment objective has been clarified as a need to maximise total return and improve diversification by investing broadly across world fixed income markets and sectors.

Strategy change for OMSL The risk budget has been refined and any tactical deviations from the global approach have been determined. The transition of the portfolios began with the original non-US allocation and transition of the US allocation has been at various trigger points.

The second change OIL has made to its strategy is in the 50 percent equities portion. This also has traditionally been split into 15 percent international equities and 35 percent US equities. The change has been made in the international sector, where OIL has now applied a currency overlay programme.

This means that instead of effectively purchasing foreign currency through the purchase of foreign stocks, foreign currency for the stocks is being purchased as a separate transaction that produces its own profits in addition to profits from stock purchases.

Mr. Paschke said: "A lot of groups manage currency to try to reduce risks, but our approach is different. We are comfortable with the risk but seeking to add value.

"This strategy has got off to a positive start and since we began it last August we have seen an additional one percent return.'' He said that greater evidence of success in currency overlay programmes, related to international equities, is due to: the programme being managed by an experienced, specific unit; there being a clearly identified process in place; a track record being easily ascertained for different clients with different objectives; the commitment of extensive resources to programmes; clients being more fully aware of the consequences of the currency programme.

All investment is done by outside contracted money managers.

"It is not cost effective to manage the investments internally,'' Mr. Paschke said.

"We have about 12 managers internationally who between them manage the portfolio and we try to get as broad a mix of managers as possible.

" We look for managers with specific expertise in a particular asset class.

We do not have any balanced portfolio managers. We make quite large allocations to managers, up to 12 percent of the fixed income class and up to seven percent of equities, which is enough for them to make an impact.

"With the new investment strategies we have tried to put in place things that have a longevity for us. Globalisation is a permanent change in fixed income and with the currency overlay we'll continue with it as long as we think there is value added.''