CHAPTER 2 - E Flashcards
What is the definition of portfolio management for an insurer?
Making choices in terms of the business written to meet long-term financial objectives of investors.
Investors seek returns on their investments, making profitability a key factor in portfolio selection.
What should insurers communicate regarding their appetite?
Insurers should communicate their defined appetite to investors and include it in business planning submissions to Lloyd’s.
This includes logical, realistic, and achievable plans.
What is the difference between short tail and long tail classes in insurance?
Short tail classes are those with quicker claims payment, while long tail classes involve longer periods for claims to be settled.
What is the concept of diversification in portfolio management?
Spreading the risk and reward across various classes of business to balance potential losses and profits.
This can also involve geographical spread or different types of customers.
What should capital providers consider when investing in an insurer?
Their own risk appetite, whether it is low for modest returns or higher for greater potential profits with increased risk.
What are Environmental, Social and Governance (ESG) issues?
Issues that govern how organizations run their business and view potential stakeholders, encompassing climate change, diversity, living wages, and supply chain resilience.
What does the FCA require from regulated organizations regarding ESG?
Insurers and intermediaries must set out their own agendas while remaining mindful of client perceptions regarding ESG issues.
What is required of managing agents by Lloyd’s in relation to ESG?
They must have a responsible investment strategy that incorporates non-financial risk factors in investment decisions.
How do ESG considerations affect insurers’ risk appetite?
Insurers need to manage the transition away from businesses not aligned with current ESG positions, such as reducing appetite for coal-related risks.
Fill in the blank: The reduction in appetite for _______ related risks is an example of ESG considerations in insurance.
[coal]
List examples of risks that insurers may consider under ESG issues.
- Involvement in forced/unfair labor situations
- Movement of livestock without welfare standards
- Water polluting industries
- Industries damaging natural habitats (e.g., palm oil)
- Illegal fishing or unsustainable aquaculture.
