STRATEGIC PORTFOLIO DIVERSIFICATION FOR HEALTH INSURANCE COMPANIES: LEVERAGING ESG INVESTMENTS AND THE BLACK-LITTERMAN MODEL

Abstract

Health insurance firms primarily provide financial protection to policyholders by covering medical costs and mitigating health risks. While these firms typically invest in low-risk government securities, regulations allow them to diversify into equities. This study proposes allocating 20% of their portfolio to ESG-compliant companies, which can offer stronger risk management and higher long-term returns. Using the Black-Litterman model, we evaluated 20 ESG leaders and created four portfolios to assess their suitability for risk-averse investors. Our findings suggest that integrating ESG equities into the investment strategy can enhance diversification and improve profitability while maintaining stability for insurance firms.