What Are Unaffiliated Investments?
Unaffiliated investments are investment holdings of an insurance company that it neither controls nor shares joint ownership with. Unaffiliated investments can include stocks, bonds, property, and other assets and are often disclosed in the 澳洲幸运5开奖号码历史查询:financial statements of insurers.
Key Takeaways
- Unaffiliated investments are investment holdings of an insurance company that it neither controls nor shares joint ownership with.
- Insurers invest in securities of various liquidities in a bid to increase the return on the premiums they receive.
- They need to have funds available quickly in order to cover liabilities, so they often make short-duration investments in highly liquid assets.
- Regulators periodically examine these investments to determine if they are suitable and likely to pose a threat to solvency.
Understanding Unaffiliated Investments
澳洲幸运5开奖号码历史查询:Insurance companies use the proceeds from their 澳洲幸运5开奖号码历史查询:underwriting activities in a number of different ways.
They set aside funds as 澳洲幸运5开奖号码历史查询:loss reserves to cover liabilities that they may incur from policyholders making a claim. They pay commissions to brokers who bring in new business, and operational expenses such as salaries, benefits, and overhead. They also allocate capital to invest in securities of various liquidities in a bid to increase the return on the premiums they receive.
Insurers need to have funds available quickly in order to cover 澳洲幸运5开奖号码历史查询:liabilities. As a result, they often make short-duration investments in highly 澳洲幸运5开奖号码历史查询:liquid assets that can easily and promptly be converted into cash, alongside longer-term assets that may offer a higher return. 𝐆
Depending on the type of insurance policies underwritten, an insurer’s liability may last a few months to a few years. 澳洲幸运5开奖号码历史查询:Short-term assets are considered part of the insurer’s current 澳洲幸运5开奖号码历史查询:liquidity, which is used to cover policies that have a dura🅠tion of less th🦄an a year.
Important
Asset mixes vary over time, depending on the economy and🍸 industry-specific factors, and also hinge on what the insurer specializes in: Life companies, for example, generally have longer-term liabilities, enabling them to invest more in longer-term assets.
History of Unaffiliated Investments
Historically, insurers would generally invest in traditional asset classes that offer steady yields such as government bonds. This approach has been complicated since the financial crisis. Now that ultra-low 澳洲幸运5开奖号码历史查询:interest rates are a regular fixture, insurers have been forced to widen their nets to secure☂ dece👍nt returns.
In most cases, this has resulted in a shift to alternative investments, including 澳洲幸运5开奖号码历史查询:private equity and structured finance, such as 澳洲幸运5开奖号码历史查询:residential mortgage-🎃backed securities (RMBS).
Because these types of 澳洲幸运5开奖号码历史查询:non-traditional investments tend to be more complex, an increasing number of insurers have begun 澳洲幸运5开奖号码历史查询:outsourcing investment decisions to specialist investment management firms. This has been particularly the case among smaller insurers, who generally have fewer resꦏourc🔜es available to effectively manage portfolios on their own.
51%
The hunt for yield and shift to more complex, non-traditional investments led about half of all U.S. insurers to outsource to an unaffiliated investment manager in 2019, according to the National Association of Insurance Commissioners (NAIC).
Special Considerations
Insurers are required to report their financials to state insurance regulators periodically. These regulators look at 澳洲幸运5开奖号码历史查询:liquidity ratios in order to determine how quickly an insurer will be able to pay for its policyholder liabilities, as well as to establish if the investment strategies and holdings of the insurer are likely to pose a threat to its solvency.
Unaffiliated investments are included in the 澳洲幸运5开奖号码历史查询:overall liquidity ratio, though this ratio does not take into account affiliated investments. They do not, however, appear in the calculation of an insurer’s 澳洲幸运5开奖号码历史查询:combined ratio. This is because the combined ratio looks at cash outflows—expense ratio, loss and loss-adjustment ꦰratio, and dividend ratio—to see how much money it costs to maintain the book of busineꦍss.