Insurance & Pensions
The largest asset owners there are, and the only ones whose liabilities are written before the assets are bought: a claim that may arrive, or a pension that certainly will.
Buy-Side: Decides whether to take it. the whole map
The seats
three of them, each answering the same six questions so that they can be read against each other.
Next to it
The other groups on the same side of the price.
Asset Management Private Markets Hedge Funds & Alternatives Wealth Management
What an interview asks here
These questions all come back to one property no other business in finance has: the cost of the product is unknown when it is sold.
Try each one out loud before you open it. What is underneath is the shape of a complete answer, not a script — somebody who can produce those parts in their own words can also answer the four variations that follow, and somebody who has memorised a paragraph can answer one.
Q1How is an insurance premium built up?
What it is checking. The opening question, and the second half of the answer is the one people forget.
A complete answer contains:
- The expected cost of claims, which is an estimate about events that have not happened.
- The cost of the capital held to be able to pay the ones that are worse than expected — this is what makes it a business rather than a bet.
- The expenses of writing and servicing the policy, and commission where there is any.
- Terms move the expected loss more than the rate does: exclusions, deductibles and limits are where the pricing actually is.
Read it properly: Insurance underwriting · Catastrophe bonds
Q2What is the combined ratio and what does it not tell you?
What it is checking. The industry's headline measure, and it deliberately excludes half the business.
A complete answer contains:
- Claims and expenses divided by premium: under a hundred means the underwriting made money on its own.
- It says nothing about the investment return on the premiums held in between, which for a long-tail line can be most of the economics.
- And it depends entirely on the reserve estimate, which is an opinion that will be revised for years.
- So it is read alongside reserve development — whether last year's estimate is proving too high or too low.
Read it properly: Insurance underwriting · Insurance investment
Q3Why does an insurer invest differently from a mutual fund with the same money?
What it is checking. The liability comes first, and that turns the whole job upside down.
A complete answer contains:
- A fund is measured against an index; an insurer is measured against payments already promised to somebody.
- So the objective is matching — assets whose cash flows land when the claims do, with the same sensitivity to rates and inflation.
- Every asset also carries a regulatory capital charge, which is a real cost of holding it and changes what is worth owning.
- A portfolio that beats a benchmark and does not match the liabilities has failed at the actual task.
Read it properly: Insurance investment · Inflation-linked bonds
Q4Why is a downgrade worse for an insurer than a price fall of the same size?
What it is checking. A rating boundary is a capital cliff, which makes the seller forced rather than willing.
A complete answer contains:
- Capital requirements step at rating boundaries, so a one-notch move can change the charge sharply.
- That makes selling a requirement rather than a choice, and the whole market knows which holders are near the boundary.
- So the price move happens before the sale, and the forced seller realises the worse of the two.
- It is the clearest example on this site of a price being set by whoever has to trade rather than whoever has the best argument.
Read it properly: Reading a credit rating · Ratings, indices and data
Q5Explain the difference between a defined benefit and a defined contribution pension.
What it is checking. Two arrangements that are not variations of one thing, and confusing them makes most pension writing unreadable.
A complete answer contains:
- Under defined benefit the scheme owes a specified income and carries all the risk of getting there.
- Under defined contribution the member carries it: what they get is what the pot bought.
- So the scheme's job changes completely — from investing against a liability to designing a default fund almost nobody will change.
- The funding level is a defined benefit concept; for defined contribution the equivalent question is what a member is projected to have, and costs decide most of it.
Read it properly: Pensions and retirement · Costs and fees
Q6A pension scheme's funding level fell and its assets rose. How?
What it is checking. The discount rate, which moves the deficit more than a year of returns does.
A complete answer contains:
- The liability is the present value of payments decades out, discounted at a rate that moves with the market.
- If that rate falls, the present value of what is owed rises — often by more than the assets did.
- Which is why schemes hedge the rate and inflation sensitivity rather than simply investing for return.
- And why the funding level, not the asset return, is the number the scheme is actually run against.
Read it properly: IRR and NPV · 2022
Q7A hedge is economically correct and the scheme still had to sell. What went wrong?
What it is checking. The distinction between being right and being able to hold on, which is the whole of 2022 in one question.
A complete answer contains:
- The hedge was held with leverage, so a move in rates produced collateral calls.
- The gains on the hedge are in the liability, which does not pay cash; the calls are in cash, today.
- Meeting them meant selling the growth assets that were closing the gap, at the worst moment.
- So the failure was liquidity rather than strategy — a hedge needs a collateral plan or it is a position rather than a hedge.
Read it properly: 2022 · Margin and collateral
Do these against a clock — one at a time, ninety seconds each, answer before you look.
Whose questions these are. Every question on this page was written for this publication. None is taken from anybody else’s question bank, and none is a claim about what any named firm asks — that is neither verifiable from here nor ours to assert. They are our own reading of which mechanism a question of this kind is testing. Information and education only.
Test yourself: five questions
Five quick questions on this part of the industry — checked entirely on your device, nothing stored or sent. Wrong answers come with explanations, and the seat pages above hold every answer. For education only.