Property-casualty insurance companies derive investment income from which of the following primary source?

Question

Options

• Ainvestment of shareholder capital
• Binvestment of policyholder funds
• CBoth A and B
• Dneither A nor B

• A
  3% (1)
• B
  16% (5)
• C
  75% (24)
• D
  6% (2)

Explanation

Option C is correct because property-casualty insurers generate investment income from both sources: they invest the float (premiums collected but not yet paid out as claims) - which represents policyholder funds - and they invest the capital contributed by shareholders to meet solvency and surplus requirements. Choosing only A ignores the massive pool of unearned premiums and loss reserves that insurers hold on behalf of policyholders; choosing only B ignores that shareholder equity is actively deployed in investment portfolios to generate returns. D is plainly wrong because investment income is a core, well-documented revenue stream for P&C insurers.

Memory tip: Think of a P&C insurer's balance sheet as having two "pools" of money to invest - what shareholders put in (capital) and what policyholders paid in (premiums/reserves). Both pools earn investment income, so the answer is always "both."

No community discussion yet for this question.