Solvency assessment for insurers aims to improve protection for policyholders

Boshoff Grobler

Our industry is also heavily intermediated, with independent financial advisers and asset consultants influencing the flow of money from retail and institutional investors, respectively. These intermediaries are trusted for being well versed in matching investors’ needs with the right product and/or solution.

Historically, asset consultants advised that insurers manage their liability profile by choosing investments mainly on the return provided, with little consideration to the capital implications of such decision. This incentivised insurers to invest in low-equity balanced funds that provided the security of money market exposure with some equity upside, the rationale being that in the long term equity returns contributed meaningfully towards a risk margin buffer.

For short-term insurance companies, liquidity in the form of cash is key. Cash solutions represent an investment strategy that focuses on maximising liquidity as well as minimising the potential for capital losses. Liquid assets are key to meeting liability payments as they fall due but are also a function of the uncertainty of the liability profile. To hedge against this volatility, investments would traditionally be ranked and selected based on the highest return.

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