Workers who manage assets at Eagan-based Blue Cross and Blue Shield of Minnesota look after a portfolio of investments and holdings with a value of roughly $1.6 billion.

Over the past 12 months, Blue Cross officials have decided to try leveraging this expertise by creating a business called Aware Asset Management, a federally registered investment adviser that large companies including other insurers can hire for help with managing investments.

The new business is part of a broader push for diversification at Stella, the parent company of Blue Cross that’s dabbled in recent years in several ventures that go beyond the traditional health insurance business.

“We feel our need to diversify our business is probably as strong if not stronger than it has been in the past,” said John Orner, president of Aware Asset Management who has been treasurer and chief investment officer at Blue Cross since 2005. “We realize that in the health insurance space, there’s only so much we can do.”

Among big national health insurers, the interest in diversification has featured a high-profile push toward vertical integration, where carriers increasingly are becoming clinic and pharmacy operators, too. It helps explain the insurer Aetna’s merger with pharmacy giant CVS and an ongoing push at Minnetonka-based UnitedHealth Group to get into the clinic business and other types of health care services.

Vertical integration, however, is costly and requires companies to take on more debt than many Blue Cross insurers want, said Deep Banerjee of S&P Global Ratings. Developing an asset management business, by contrast, brings diversification without having to borrow money to make it happen, Banerjee said.

“This is not common in the health insurance space — [it’s] a lot more common in the life insurance space,” he said. “It will be interesting to see how much they can grow.”

Before Blue Cross’ parent company took the name Stella in 2016, it was called Aware Integrated Inc. — which helps explain the name for the new investment adviser. Aware Asset Management got started in January 2018, but Blue Cross officials spent the year building the business internally before marketing started last month.

As the state’s largest nonprofit health insurer, Blue Cross charges premiums today to cover the cost of medical claims incurred down the road. The asset management office at Blue Cross has the job of overseeing those reserve funds to preserve the principal and maintain liquidity, Orner said, while also generating some income.

Blue Cross stays away from riskier investments, Orner said. Some big health care names can be found on the long list of stocks and bonds the insurer disclosed to regulators at the end of 2017, including Aetna and pharmaceutical giant Pfizer — maybe a little surprising since Aetna is a competitor, and insurers regularly complain about drug costs. But the goal is a diverse set of holdings, Blue Cross says, across a variety of industries and sectors.

“With most major insurance companies, investment income is a big part of the net income each year,” Orner said. “It’s a significant part of our net because [insurance operations] oftentimes draw losses.”

With 10 employees including four new hires thus far, Aware Asset Management expects to hire more people as the asset base grows, Orner said. In January, the business launched an exchange-traded fund (ETF) that insurers and large corporations might invest in, with the goal of preserving capital while targeting a gross yield of ¾ to 1 percentage point over the most recently issued 3-month Treasury bills.

Blue Cross must manage its financial reserve in ways that satisfy regulators who are mindful of how the asset portfolio translates into a complex calculation of the insurer’s “risk-based capital,” or RBC level. Orner said the new business will draw on this expertise in understanding how different investments impact the RBC calculation, which is an important metric for credit rating agencies as they evaluate insurers.

“We just decided it made sense to leverage those existing assets and turn them outward, much like a lot of other insurance companies have done, and create a suite of products that we can sell to other like insurance companies and others,” Orner said. Customers will be looking for “a place to put some fixed-income assets that don’t negatively impact me from an RBC perspective,” he said.

At Stella, diversification meant investments last year in a Georgia sports medicine company and an IT firm that helps insurers and health care providers to assess the financial risk with groups of patients. The parent company has been trying to grow a division that was rebranded last year as Further, which administers health savings accounts.