For casualty insurance, do you need to match the average maturity of portfoilo=the estimated duration of liabilities? I thought so. But from 2003 AM Essay Question 1, it seems the portfolio duration is always > than liabilities duration. Why this is the case?
You are taking this thing way too far if you are analyzing the first question from 7 years ago. I dont have the question or else i would try and help you. You want this bad.
To answer your question: casualty insurance companies generally don’t conduct ALM, because it’s difficult to estimate the duration of their liabilities (because they insure against natural disasters, accidents, etc.). It’s a distinguishing factor from life insurance companies. CFAdreams, FYI: the 2003 test is posted on the Google Group for L3 CFA candidates. Some questions are out of date.
Remember that prop & casualty insurance companies are not able to accurately forecast the timing or size of its liabilities. The claims often have a long tail however, which allows them to invest. The surplus portfolio is typically invested more agrressively for growth and the rest is invested relatively short term (compared to life insurers) with more liquidity. Porperty and casualty insurers often invest in a lot of municipal, corporate mortgage and government bonds with a duration of somewhere around 5 years with lots of liquidity.
Neveruse_95%_everagain, Can you give me a link to the google group?
PeteyPete: if you want, send me your email… I need to post to Google group administrator to invite you: ben.millard402 at gmail dot com Happy to help out