Insurance companies segment their portfolio according to the line of business, much like individuals create layers to meet specific goals. What are the reasons they have been moving away from segmentation? Is it simply because it is not optimal from diversification standpoint?
The “silo effect” is definitely one possibility for the move away from segmentation; from my old LIII notes, some insurers are trying out a total return approach; in Canada, valuation methods have moved to projecting out asset and liability cash flows simultaneously and it’s easier to project out one pool of assets rather than having each LoB trying to do so with its own assigned pool.