Return Requirements: The return objective of a non-life insurance company’s surplus portfolio is to target maximum returns and capital appreciation to protect against the effects of inflation. The surplus portfolio returns can be used to supplement funds for liability claims. The growth of the surplus is very important because it allows the company the ability to underwrite a multiple of new policies and maintain competitiveness.
Risk Tolerance: Given the long time horizon, low liquidity needs and the need to maximize returns, the surplus portion of a non-life insurance company can tolerate above average levels of risk. The non-life company’s financial status is a key determinant in its ability to assume risk and meet or supplement its liquidity requirements. Risk tolerance is determined by surplus size in relation to total assets, and the total support level for premiums underwritten
