ST7 Non investible assets

[tommo]

Please would you explain the following statements (as copied directly from Core Reading).....

"In effect, these non-investible funds are tangible, short-term assets. Therefore,
the insurer may decide that a smaller proportion of its other, investible, assets
needs to be invested short."

Cheers,

Alun

 

[LastHurdles]

Because these non-investible funds expect to be received in the near future eg balances held by brokers, they could be considered to be equivalent to a very short term bond or cash.

Now, of the portion of investible funds, as the funds described above expect to be received shortly, a smaller amount of the investible funds needs to be invested in short term liquid assets such as cash.

You should also consider any potential bad debts associated with eg broker balances.

 

[maz1987]

Pretty much as LastHurdles says, suppose the insurer determines it needs to hold an amount, X, of short-term assets to meet its (short-term) liabilities

If it has an amount, Y of non-investible assets held by third parties, then it might consider reducing the investments it makes in short-term assets (such as cash or short-term bonds) to be X-Y rather than the whole of X.

However it needs to consider that it may not be able to realise its non-investible assets as its liabilities fall due, so could face the situation where all of X is needed immediately, but it can't recover all of its non-investible assets immediately.