Non-life Insurance Company

Liabilities:

1. Long-tail for casualty company: take years to process
2. Structure is a function the product mix sold
3. Underwriting cycle follows business cycle
4. Short duration due to 3-5 years of underwriting cycle. (underwriting loss is small at the outset and progressively larger until the end)

Return:

1. more uncertain liability but less sensitive to interest rate
2. Bonds for meeting claims
3. Stock to build surplus
4. Large Stock and Bonds to provide current incomes

Not Tax Exempt

Risk: Low risk tolerance

1. Inflation risk – as providing repairmen
2. Common-stock –to-surplus ratio: 0.5-0.75 or even lower ceiling

Liquidity: High especially at the end of underwriting cycle

Time Horizon: Shorter than life-insurance. However, holding longer maturity for tax-exempt bonds

Tax Considerations: Taxable

Legal and regulations: Need only Risk Based Capital (RBC)

Unique Circumstances: