Page 268 - Reinsurance Management IC85

The Insurance Times

Corporate Liquidity
Every insurer will want to maximise the return from
his capital which is invested in financial assets.

He must however balance the portfolio of investments
against the potential need to pay for admitted
claims. Evidently, investments of a longer term
nature are likely to yield higher interest but such
an arrangement would mean illiquid asset or loss
of higher interest due to premature closure.
Investment in the stock market increases the cost
of administering and also exposure to capital loss
but rewards with higher return for the risk taking.

Given this characteristic, stock market investments are
used to leverage capital gain for a better return from
the investment portfolio. Liquid cash is to be provided
for, as it would be extremely embarrassing for a
insurer to have insufficient liquid assets with which
to pay a claim. Neither should it be necessary, nor
even would it be desirable to have to sell assets -

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