Investments are the largest category of asset for an insurance company and are typically around 90% of total assets. Now although they're primarily fixed income investments in the form of corporate and government bonds, they may also include equities, derivatives and also real estate. Now we're gonna focus here on the accounting for financial assets, that is fixed income investments, equities, and derivatives. The accounting classifies the investments into three categories; held to maturity, available for sale and held for trading. And the classification determines how the investments are recorded in the balance sheet and earnings. Let's start with held to maturity. These investments are those where the company intends to hold them for a really long time until they mature. So really, the company shouldn't care too much about short-term changes in the value of these investments. As a result, they're recorded at amortized cost effectively the initial purchase price. This means that only interest earned on the investments or any impairment losses on them are recorded in earnings within investment returns. Therefore, fluctuations in the value of the investments are not reflected in the financials. Now let's move on to available for sale investments and those are ones where the company intends to hold them for the medium to long term but may choose to sell them if they need the liquidity. So the company does care about fair value changes in the long term. They are therefore recorded at their current fair value or market value in the balance sheet. However, the company doesn't really want lots of volatility in their earnings 'cause they don't plan to sell them in the short term. So the changes in the market value are recorded in OCI which is part of equity, so not in earnings. However, when the investment is sold, all those fair value gains and losses previously recognized in equity are then recognized in earnings within investment returns, a process which is known as recycling. Finally, we have held for trading investments and those are ones which are usually quite liquid and those are held exclusively to buy and sell. For these investments, the company definitely cares about market values so they are recorded at their current market value in the balance sheet with all the changes in fair value so all the gains and losses going to earnings and these would be included within investment returns. So that tells you what happens within each of the categories but it doesn't really tell you which investments go where. So let's look at that now. Fixed income investments have the biggest choice as they can go in any category depending on whether the company decides to hold them to maturity for the medium term or for trading. Equities, however, don't have a maturity as such so they can only be classified as available for sale or held for trading. Finally, derivatives are not designed as actual investments. In theory, they're held for speculative or hedging purposes so they can only be categorized as held for trading. There are some alternative rules if they're held for hedging purposes but we aren't gonna cover those here. Typically, insurance companies have most of their investments classified as available for sale. Remember that they usually have a lot of fixed income bonds so they have a lot of choice here. However, available for sale is a good category for them 'cause it allows a lot of flexibility around whether they can sell them if they need liquidity whilst also avoiding too much volatility in earnings since the fair value changes are recorded in equity.