Insurer assets generally consist of bonds, equities, mortgages or mortgage-backed securities, and premium balances, as well as assorted other categories. Bond value is affected by interest rates and default rates. Equities change with market movements. Mortgages, in addition to being affected by interest rates and default, are also affected by prepayment patterns. Although many other factors could affect asset value, the most important factors to model are interest rates, default risk, mortgage prepayment patterns, and stock market movements.
Liabilities differ by type of insurer.
For property-liability insurers, the primary liabilities are loss reserves, loss adjustments expense reserves, and unearned premium reserves. Thus, forecasting the value of future loss payments is important. Although the statutory valuation of loss reserves is generally undiscounted, the economic value of these reserves would be the discounted value. Thus, the interest rate is also an important consideration for the economic value of these reserves. The underwriting results of an insurer depend on premium income and losses incurred.