There is no consistency in the life/nonlife IPS, its just so disjointed in terms of presentation, at least in Schweser. This is really pissing me off lol.
What are the odds of this being the Institutional IPS, rather than say DB Pension, or Foundation, Endowment, etc..?
I looked at old exams. its:
2008: DB Pension
2007 Endowment
2006 DB Pension
2005 DB Pension
Does that mean we’re due for an insurance company question or that they just generally dont use them?
Life insurance:
-need to match assets and liability interest rate risk while earning a spread between the two
-keep in mind disintermediation
Risk: overall tolerance for risk is low, most use ALM. Keep in mind credit risk and cash flow volatility risk
Return: normally stated as a net interest spread or total return of the portfolio (but this is not the preferred way given the ALM need)
Liquidity - generally low (but if they have shifted their product mix to more interest rate sensitive products, such as fixed rate annuities, this may necessitate a higher level of liquidity, because of disintermediation)
Time - long, but consider product mix
Taxes - Investment returns for claims (tax-exempt); surplus is taxable. Deferral of taxes on CSV of life insurance and annuities are a competitive advantage of life ins companies
Legal - heavily regulated. “Prudent Person Rule” NAIC
Unique
- consider products impact on investments
Non-Life
- liabilities tend to be short duration (value and timing of claims uncertain leading to volatile operating results)
- inflation can affect value of liability payments through replacement cost or current cost coverage (think homeowners insurance)
- tax planning is significant, given cyclicality of profitability: wants to max taxable income during a low periods of profitability or losses and minimize taxable income when things are strong
- long tail on liability structure
Risk
- low (unpredictable payout and inflation risk)
- understand underwriting cycle (premiums too low for risk)
- surplus can be invested more aggressively, especially to grow business
Return
- measure after tax
Liquidity
- important and substantial
- tax planning can impact liquidity
Time Horizon
- shorter than life insurance (though there is a tail on the liability)
Taxes
- sell taxable investments when profits are low and sell tax-exempt when profits are high
Legal
- risk based capital requirement
- state regulation less than life
Question about the risk tolerance..
For the fixed income portfolio is it safe to say the tolerance is low? I know the surplus risk tolerance is high…
I would say low for fixed income due to the requirement they receive their principal and interest to meet policyholder liability payments, their quasi fiduciary duty, etc.
发表于 2013-4-2 13:54
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