8JULY 2024OPINIONIN MYInsurance represents a contractual agreement between an insurance company and a policyholder, serving the purpose of mitigating financial liabilities and facilitating recovery from unforeseen losses. In this arrangement, the policyholder remits a nominal sum, termed as the insurance premium, to the insurer in exchange for comprehensive financial safeguarding or reimbursement against designated perils and hazards. Additionally, in the context of life insurance products, policyholders may also be entitled to maturity benefits as outlined within the policy terms.The insurance company makes a profit primarily through prudent underwriting practices and investment income generated from the premiums collected. Insurance companies invest the premiums received in various financial instruments, such as stocks, bonds, and real estate. The returns earned from these investments contribute to the insurer's overall revenue streams. By accurately pricing risk and prudently managing the investment portfolios, insurer aims to optimize the likelihood of generating more revenue, which consists of premium collection and investment income, than paying out more in claims, maturity benefits, and expenses. Therefore, it is crucial to balance the long-term value creation for clients and shareholders within the risk appetite and competitive landscape.In the context of the Insurance business, the key objectives of Investment are (1) to maximize the investment returns for a given risk appetite and (2) to achieve the long-term strategic game plan through portfolio diversification and a prudent liability-driven investment strategy. Hence, in such perspectives, there are principles in guiding the decision-making and resource allocation to reach the desired goal. These is what I call the 3-dimensional core factors that govern the investment value chain decision-making process, i.e., earnings volatility, liquidity, and solvency position, both in current and under stressed conditions. These factors are all connected to each other. If you change or do something with one factor, it can affect the others. They're like pieces of a puzzle that fit together, and you can't look at just one piece without considering how it fits with the others.For instance, endeavors to enhance earnings through investments in high-risk assets like private equity may precipitate diminished liquidity ratios and heightened regulatory capital requisites, consequently lowering the insurer's capital adequacy. However, prudent evaluation of these interdependencies becomes imperative if the risk-adjusted returns from private equity investments adequately INVESTMENT VALUE CHAIN IN THE WORLD OF INSURANCEBy Alex Chin, Chief Investment Officer, Generali Malaysia Alex ChinIn operationalizing the investment value chain, it is imperative to reinforce the efficacy and precision of the core investment functions in alignment with the insurer's objectives
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