Inputs needed: Insurance company

[David]

Should there be a restriction on insurance companies for using policyholder funds to buy stocks of its own companies? Currently there is no such restriction in place. But if you have opinions on this, please let us know.

[CFA]

yes，Because this increases the systemic risk because of the insurance law

[David]

yes，Because this increases the systemic risk because of the insurance law

Could you please elaborate?

[standardplayer]

Should there be a restriction on insurance companies for using policyholder funds to buy stocks of its own companies? Currently there is no such restriction in place. But if you have opinions on this, please let us know.

You should be able to invest in operating subsidiaries but, there should be capital and reserve requirements for insurance companies. A portion of reserves should have to be in cash to cover short term losses and a portion in investment grade bonds to cover a portion of longer term losses. Then you should be able to put the rest into other investments like business equity.

Warren Buffets Berkshire Hathaway owns a lot of operating companies and publicly traded stocks.

https://en.wikipedia.org/wiki/Berkshire_Hathaway

[David]

Thanks for your inputs. I will forward them to the dev team.

[standardplayer]

After further Research I determined that it might be useful to restrict the amount of stocks to a smaller portion of capital say No more than 20%-30% of Assets.

"What Insurance Companies Invest In

Insurance companies could invest in the stock market, and in fact they do, but investing in the stock market alone would be too risky because it's a cyclical market that swings from high bull market returns to considerable bear market losses. An insurance company has to know with a high degree of certainty that overall in any given year they're not going to absorb an unsustainable loss; therefore stocks can only represent a relatively small portion of their investment portfolios. For life insurance companies, stock market investments represent around 5 percent of total holdings. Property and casualty insurance companies usually invest around 30 percent of holdings in common stocks."

Quoted Article: https://finance.zacks.com/insurance-com ... 11120.html

Another Article: https://www.naic.org/capital_markets_archive/110819.htm

[elaken]

I will say, "Berkshire Hathaway" is a bad example of how a typical insurance company works. It is a great example of how a holding company that has both insurance and operating subsidiaries works. There are plenty of opportunities in that arrangement to use insurance float (claims reserves) to purchase fixed income securities (debt and preferred equity) from other subsidiaries of the parent.

Like the other guy said, the restriction isn't around buying stocks of subsidiaries, it's actually around how much of the reserves portfolio can be invested in what. The limitation is that you have to have enough capital to meet claims and remain solvent. Insurance companies have statutory requirements that dictate how much capital they need (else, they can be seized by insurance regulators). To enforce management of that risk, the regulators will assign charges against each class of assets. The math on that works sort of like banks reserve requirements, and of proceeds according to tiers, with each tier incurring a "capital charge" of sorts. So your IG bonds count like 99 cents on the dollar, but your equities might only count for 40% of their market value, or something (I do not know the real answer). With those charges taken into account, if you fall below equity requirements, you get seized by a regulator.

Implementing something that complicated in the game is probably both not worthwhile and impossible. But to simplify it, there should be some limit on equity ownership for insurance companies (or you get seized).

[saferain]

保险公司不需要限制购买母公司的股票，不过需要修改一下保险公司投资收益盈利和亏损的方式。用保险资金购买股票，买股票没有卖出去之前，所有的涨跌都不应该计算在收益里，只有股票卖出去才需要计算在收益中。
这个图片是我用保险公司投资收益的漏洞，来让自己公司股价上涨的。这个能更好的说明，保险投资收益存在的不合理的计算方法。

[saferain]

弄了半天才知道图片要用附件