Hi All,
Anybody here works with reserve management for insurance companies or have a rough idea of how investments are run?
Is my idea listed below on the right track?
Reserves are the pool of capital reserve for paying out policy holders. Investments for the reserves are generally liability based with a focus on high quality investment grade investments. Since policys could be surrender due to random events liquidity needs are higher. High grade corporate bonds, treasuries, some structured bonds, some agencies are typically the core investments for reserves.
Also since payment on policy holders are usually fixed, there is a high interest rate risk with these investments, also since rates move down so low and there is a lower supply of longer duration assets insurance companies are having a tougher time funding these liabilities. The financial markets in 2008 was a big eye openner for insurance companies, alot of them took on market to market losses on their investments and lost liquidity on their investments. The main focus should be balancing funding liabilities, liquidity, and achieve excess return on the policies.
Thanks