Chapter 30 - Investment

Question 1

Asset characteristics to consider: (6)

Answer 1

1. Return
2. Security (and volatility of market value)
3. Marketability
4. Expense
5. Term
6. Currency

Question 2

The principles of investment

Answer 2

A. Company should select investments that are appropriate to the nature, term and currency of the liabilities

B. The i vestment should also be selected so as to maximise the overall return on the assets, where overall return includes both investment income and capital gains; and,

C. The extent to which A. May be departed from in order to meet B. Will depend, inter alia, on the extent of the company’s free assets and the company’s appetite for risk

Question 3

3 conditions of immunisation

Answer 3

A. PV of liability outo and asset proceed are equal

B. DMT of liability outgo and asset proceeds are equal

C. Spread about the mean term of the value of the asset proceeds is greater than the spread of the value of the liability outgo

Question 4

Regulatory controls that may be inplemented ito the investment strategy that can be followed by a company: (8)

Answer 4

1. Restrictions on types of asset insurer can invest in
2. Restrictions on amount of any particular type of asset that can be taken in to account for the purpose of demonstrating solvency
3. Restrictions on the maximum exposure to a single counterparty
4. Requirement to hold certain portion of total assets in a particular class
5. Requirmnt to match assets and liabilities by currency
6. Reqirement to hold a mismatching reserve
7. Limit on the extent to which mismatching is allowed at all
8. Custodianship of assets