Short and Long-term Insurers have proprietary capital that tends to be available for the long term. The challenge is how to invest this capital to take advantage of the risk premium available in the long-run, considering the short-term needs of profit stability and capital resilience. By considering how much additional capital is required to optimise returns, rather than optimising under existing constraints, one can realise the full potential of this opportunity. To execute on this, a framework is required to translate from business needs to the available asset strategies.
We take a look at managing the pool of assets backing future profits, and what challenges and opportunities lie ahead with IFRS17 coming into effect. We find that there is opportunity to optimise returns and manage profit volatility, as well as a strong case for centrally managing these funds with guidance from top-down trade-off framework.
