General insurers typically have the shortest investment time horizon among the three investor types listed. Here’s a detailed explanation:
Nature of Liabilities: General insurers deal with short-term liabilities, such as claims arising from accidents, natural disasters, or other events that can happen frequently and require prompt payment. This necessitates a relatively liquid and short-term investment portfolio to ensure that funds are readily available to cover claims.
Investment Strategies: Due to the need to maintain liquidity and manage risk, general insurers often invest in short-duration assets. These might include short-term bonds, money market instruments, and other liquid assets that can be quickly converted to cash.
Comparison with Other Investors:
Foundations: Foundations typically have longer-term investment horizons as they aim to support their missions over an extended period. Their endowment funds are managed to generate returns that can sustain operations and grant-making activities in perpetuity.
Defined Benefit Pension Schemes: These pension schemes also have long-term horizons, as they need to ensure that funds are available to meet the retirement benefits of employees over many years, often several decades.
CFA ESG Investing References:
The CFA Institute explains that general insurers have shorter investment horizons due to the nature of their liabilities and the need for liquidity to pay out claims promptly (CFA Institute, 2020).
The institute also notes that the investment strategies of general insurers are designed to align with their short-term liabilities, making their investment horizon shorter compared to foundations and pension schemes.
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