MARKETS: LIFE & GENERAL INSURANCE MARKETS
Insurance products can be divided into two categories: life and general. General insurance is a commodity, cyclical business relying on short-term cash flows. Accordingly, the amounts available for investment are relatively small. Life insurance, by contrast, is a business with large, fairly stable cash inflows from contractual savings and long-term pay-out obligations. The life insurance industry is therefore a significant investor and fund management is a core activity,
Original life insurance products were all about financial protection against the risk of death. As time went by, however, a savings element crept in and the balance began to swing towards investment.
In investment terms life insurance companies behave like pension funds, cash inflows and outflows are reasonable predictable, in principle, insurance companies hold a higher proportion of their assets in fixed income. They invest in more property than pension funds. They follow a more cautious investment strategy than pension funds and are able to take a longer-term perspective.
