Principal Issues for Investment
Strategy Evaluation
The Underwriting Environment
The Investment Markets
Going Concern Considerations
Optimization vs. Maximization of Results
Tax Considerations
Regulatory and Other Constraints
The Underwriting Environment
Plausible Future Scenarios
Mix of Business; e.g., long tail vs. short tail
Growth
Cash Flows/Profitability
Market Turns
Contingencies; e.g., Catastrophes and Reserve Adjustments
The Investment Markets
Returns Available/Yield Curves
Risk Factors
Desirability of Hedging
Short-Term vs. Longer Term Scenarios
Going Concern Considerations
Rational Expectations
Cash Flows From Future Business
Growth
How Important is Asset/Liability Matching?
Interest Rate Forecasts
Going Concern Cash Flows
Optimization vs. Maximization
of Results
Maximization May Involve Risk Factors
Unacceptable to Investors, Management, or Rating Agencies
Optimization Considers The Above
Subjective Factors
Which Would You Choose?
A. Annual Guaranteed Return of 8%
B. Returns of 0%, 8%, or 22%, Averaging 10%
Tax Considerations
Total After Tax Return is the Critical Variable
Short-Term vs. Long-Term; e.g., NOLs
Differentials Between Taxable and Tax-Exempt Yields
Dynamics of Underwriting Income, Taxable
Investment Income, and Tax-Exempt
Investment Income
Regulatory and Other Constraints
State Regulators
Investment Mix
Investment Concentration
Risk-Based Capital Effects
Asset/Liability Matching
Rating Agencies
S.E.C.
Auditors
Wall Street