Hi, Can you please help me understand the meaning of the following sentence? ‘Surplus growth is important to the expansion of insurance volume.’ Reference: Schweser Book 2, Page 20, Life Insurance Company Objectives. Thanks, MG.
On the one hand an insurer´s capital must be larger than certain thresholds to guarantee its solvency for a given level of business (primes). On the other hand, the way in which insurers invest policyholders´ reserves is tighly regulated because their well being is at stake. Therefore, the only way to fund an expansion in premiums issued is by increasing its equity base, either by surplus growth (high returns on equity) or a capital increase.
An insurer with a surplus can charge lower premiums because it can meet some of its liabilities with the surplus. The lower premiums attracts more customers.
A Life insurance portfolio can be sub divided into two - 1) the fixed income portfolio - which is managed keeping in mind the liabilities (i.e policy payments, their timings and amount) 2) Surplus portfolio- where a more agressive investment strategy is followed. If the company earns great returns on it, it can lower the premiums it charges for its policies. that increases the company’s competitiveness as the co. grows and business expands.
Thanks folks.
May I add 1 more portfolio segment to the insurance company? There is this middle segment for “Enhanced margin”, which focus on spread management. - sticky bips Wrote: ------------------------------------------------------- > A Life insurance portfolio can be sub divided into > two - > > 1) the fixed income portfolio - which is managed > keeping in mind the liabilities (i.e policy > payments, their timings and amount) > > 2) Surplus portfolio- where a more agressive > investment strategy is followed. If the company > earns great returns on it, it can lower the > premiums it charges for its policies. that > increases the company’s competitiveness as the co. > grows and business expands.
sticky Wrote: ------------------------------------------------------- > May I add 1 more portfolio segment to the > insurance company? > > There is this middle segment for “Enhanced > margin”, which focus on spread management. > > - sticky > what kind of asset class investment is reqd to earn enhanced margin… is there a sperate portfolio for this
This is a great thread. I too want to know more about the “enhanced margin” portfolio. I get the fixed-income part to cover policy claims etc… and the surprlus to enhance volumes in the future by using the growth of the portfolio in an equity based investment. However, when answering a question on the exam, do we mention all 3 of these segments and if so, what do we specifically state about the “enhanced margin” portfolio?
bump. can anyone pls clarify abt enhanced margin portfolio… i’m really struggling with this