Bank for insurance company and personal

[davidkie]

Hi,
I have question , is there reason why insurance company and personal money cant be deposited in Bank?

For insurance company, i notice it does not worth to invest in bond and the only way to make more profit is by trading stock.
So it will be best if the insurance company money can be saved ( deposited ) at bank

Thanks

[buells]

You don't really buy bonds for the profit, you buy them for lower risk. One question I have is whether bond prices rise with lower interest rates in the game? Govt. bond prices should at least sometimes move in the opposite direction as stocks.

[davidkie]

You mention about low risk? bank is not consider low risk? Bank gives more interest than bonds.

[buells]

I just mean that insurance companies buy bonds to balance their portfolios and reduce volatility/risk. I don't think banks should pay out much more interest than T-bonds, but this might be necessary for game balance reasons. If insurance companies can deposit with banks, that may upset gameplay balance because banks would have a huge source of funding. In real life, insurers prefer long-term bonds that match the long duration of their claims. Keeping money in short duration bonds like T-bills or in a bank account exposes them to too much interest rate risk.

[davidkie]

I am not entirely agree..
1. Reduce volatitly / risk : there is no volatality in the bank.. LOL
2. if T-bond pay coupon 1% and bank pay 2%, no need to be Warren Buffett, i will certainly pick bank pay 2%.

Well, maybe it juz to balance the game.

[buells]

Yeah, real life insurers want longer duration than a bank is going to give you. Not too relevant for our discussion because many of the bonds in the game are short term. I agree the current setup is probably just for balance.