Non-life insurance companies - Stock allocations

Schweser book 2, p 172 “Duration of liabilities tends to be relatively short.” “Nonlife insurance companies hold a greater percentage of equity-type investments in their portfolios than life insurance companies hold.” *********************************** I am trying to reconcile this two statements. I would have thought that a lower duration would lead to less equity investments. What am I missing?

Duration is for bonds. Beta is for equities. Non life companies allocates more to equities compared to life companies. But after that allocation, non life holds shorter duration bonds compared to life insurance companies in their bond portfolio. Non life liabilities are shorter term, compared to life companies. Hope this helps. :slight_smile:

I guess I am confused as to why nonlife could have a larger portion to equities at all given that the cash flow characteristics of the underlying contracts is more volitale. I would think that life companies would be able to allocate more to equities because they are more certain about mortality timeframe that nonlife companies are about their payouts. Edit: Are they basically immunized from an ALM perspective and then take the surplus and go equities? Why wouldn’t it be the same for Life insurers?

Life insurance is more regulated then non-life (although non-life is also regulated). Life companies are certain about amount of outflows and uncertain about timing of outflows. Non-life companies are uncertain as to both amount and timing of cashflows. As they are not sure how much they need, they may be a little better off with higher equities. Life policies are longer term, then non life. So they need longer duration bonds for ALM. Non life also does ALM to the extent possible. But they are uncertain about the amount of outflows also.