This paper outlines the nature of risk in the insurance sector. Section 2 of this paper develops a simple model of insurance risk; a detailed explanation of this model is provided in Appendix A. Section 3 focuses on the other main characteristic risk of the sector, namely market (or investment) risk, while briefly referring to the full range of more general risks. A simple resilience model for measuring market risk is discussed with more details of the model provided in Appendix B. The evolution of life insurance as a means of collective investment as well as an insurance vehicle is described in Section 4. Section 5 deals with the prudential supervision of insurers. Since the prudential framework for life insurance is relatively more developed (partly because it has a less diverse range of insurance risks to deal with than does general insurance), this Section places more emphasis on life insurance than on general insurance. Some current risk issues in life and general insurance are examined in Section 6, and Section 7 provides some concluding remarks.
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