Unaffiliated Investments
Candlefocus EditorInsurance companies typically invest in short-term securities such as certificates of deposits (CDs) and other highly liquid assets with short maturities. This gives them the flexibility to make quick decisions in case they need funds to pay out liabilities. Insurance companies are subject to regulations by the National Association of Insurance Commissioners (NAIC) which help ensure the safety of these investments.
Insurers make these investments to protect themselves and help their customers, even though the insurer isn’t the direct owner of the assets. The insurer is the holder of the assets, so if the investments lose value, it’s the insurer who would lose out. Therefore, the insurer must be careful when making these investments and must take into account the present and future risks associated with the investments.
Insurers may enter into agreements with asset managers who can manage the investments using a diversified portfolio that maximizes returns while limiting risks. This helps increase the value of the investments over time and ensures that the funds are invested in quality assets that are well diversified and have good potential for growth.
In conclusion, unaffiliated investments are a good way for insurance companies to potentially increase the return on premiums they receive and to protect their assets in case funds are needed to pay out liabilities. Regulations must be complied with to maintain the safety of the investments and they must be monitored to mitigate the risks associated with these investments.