From the course: The ABCs of the Banking and Insurance Business: AML, KYC, the NAIC, IFRS, and More
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Investments: The other side of the insurance business
From the course: The ABCs of the Banking and Insurance Business: AML, KYC, the NAIC, IFRS, and More
Investments: The other side of the insurance business
- [Instructor] While insurance companies are known for underwriting policies and managing claims, their profitability and long-term stability heavily rely on another critical component, investments. When an insurer collects premiums, they don't just sit idle. These funds, known as the insurance float, are invested to generate returns until they're needed to pay claims. Investment income is a crucial source of revenue for insurers, complimenting underwriting profits, or even offsetting underwriting losses. Insurers carefully allocate their investment portfolios based on the nature of their liabilities. Life insurers with long-term obligations, for example, typically invest in longer duration assets like bonds or real estate. In contrast, P&C insurers, which handle shorter term claims, favor more liquid diversified portfolios that include government securities and high grade corporate bonds. One of the most important strategies in insurance investments is asset liability matching…
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