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Investment Management for Insurers

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Investment Management for Insurers

Wiley,

15 min read
10 take-aways
Audio & text

What's inside?

You may think you are an insider in insurance company corporate finance, but if you want to take the final exam, here is your textbook — an entire faculty of experts wrote it just for you.

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Editorial Rating

6

Qualities

  • Comprehensive
  • Analytical
  • Innovative

Recommendation

David F. Babbel, a professor of insurance and finance, and Frank. J. Fabozzi, a professor of finance, compiled Investment Management for Insurers, an extensive series of articles (including six they wrote) on managing investments. Various experts contributed the other two-dozen plus articles. The book, which is organized in sections based on major investment management topics, focuses first on general insurance issues, such as risk management and setting up a performance management system for insurers. Subsequent articles cover fixed income products, valuation, equity portfolio management and measuring and controlling interest rate risk. This highly technical book may not be sexy, but it is very sophisticated and fully accessorized with tables, charts, graphs, mathematical formulas and footnotes. Let’s be clear: it’s a book for pros, an in-depth compilation that getAbstract.com recommends to professional and academic specialists in insurance investment management.

Summary

The Problem with Insurance Companies

The first insurance issue at hand is why dramatically more insurers have become insolvent in the last decade. The culprit is inadequate risk management. Thus, insurers are upgrading their financial risk management and control systems to reduce their exposure to risk and to manage more effectively those risks they do accept. The four major reasons for risk adversity are managerial self-interest, the non-linearity of taxes, the cost of financial distress and the existence of capital market imperfections. Insurers should only manage risks in-house that they can manage more efficiently than the market itself, risks that are part of their firm’s array of services. The two types of risk an insurance company should manage itself are the risks that are central to the insurance business and those actuarial exposures that are complex and difficult to communicate and transfer to third parties. A broad-based risk management system to cover these risks should include standards and reports, underwriting authority and limits, investment guidelines and strategies, and investment contracts and compensation.

What is Risk?

Risk analysis has...

About the Authors

David F. Babbel, a Professor of Insurance and Finance at the University of Pennsylvania’s Wharton School since 1985, previously taught at the University of California at Berkeley. He served as Vice President of Insurance and Pension at Goldman Sachs and was the Senior Economist at the World Bank. He has published extensively on insurance-related subjects. Frank J. Fabozzi, editor of the Journal of Portfolio Management, teaches finance at Yale University’s School of Management and previously taught at M.I.T. He consults on fixed-income investments and derivatives.

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