Insurance exposure and investment risks: Management and regulatory implications

By exposing itself to greater risks on invested funds the company can also increase its expected returns. Because there are risks involved with both the insurance and investment operations, a major problem for an insurance company is to determine just how the two types of risks are to be balanced. In an earlier paper the authors dealt with the relationships among growth in premiums written, insurance loss and investment return. In this paper the questions are revisited from a policyholder and regulatory point of view, and suggestions are made concerning the reaction of the firm under various postures the management may take towards risk.