Although the capitalization and prudential regulation of insurers is complex, the economic essence of an insurance company is simple.

A company is established with capital and regulatory licenses. It agrees to make future benefit payments and/or cover the economic cost of certain risks in return for receiving premiums. Because of the time lag between the receipt of premiums and ultimately having to pay out — which can be decades — if the company is well run, it will enjoy an ever-increasing “float” of money. READ MORE