Hi Acted, I am struggling to understand a part of the solution regarding impact of funding requirement on investment strategy, part of the solution says: For less extreme outcomes, a liquid investment strategy may be sufficient . . . for example focusing on cash or very liquid bonds . . . otherwise there could be a requirement to liquidate assets at short notice to meet trust fund requirements . . . this could be especially costly if non USD assets need to be converted to meet the trust fund requirements. Perhaps I'm not fully getting how a funding requirement works - it's my understanding that the investment strategy has been set through regulation, requiring the insurer to invest in a trust fund, which would create liquidity issues when trying to pay for claims. I don't understand how the solution is suggesting to use a liquid investment strategy if the investment strategy has been set out already. Any explanation on this would be greatly appreciated. Thank you! Harry
The investment strategy has not been set through regulation. The Syndicate just has to separately "hold" assets to match its liabilities under the trust fund. Note these liabilities are gross of any expected reinsurance recoveries so the syndicate cannot rely on any liquidity provided by them.
