An insurance company is essentially in the business of being paid to accept someone else's risk, so it's pretty important that they understand and manage the risks that they take on. The key risks to an insurance company are underwriting risk, market risk, and regulatory risk. Let's look at them each in turn. We'll start with underwriting risk. This is the risk that insurance premiums are not sufficient to cover future claims and expenses, and although this is partially managed by ensuring that products are priced appropriately, this pricing is based on claims estimates and experience is not always in line with these estimates. For P&C business, the major risk is of a catastrophe such as a hurricane, an earthquake, or a flood. A catastrophe is divined as a single event which causes more than $25 million in property losses. And although P&C insurers can anticipate some risk of catastrophes, they are hugely variable in terms of how large the losses are. Stop loss insurance can therefore be very important in managing this risk. For life insurance, the major risk here is longevity risk which is the uncertainty regarding the life expectancy of the policy holders. Note that this is the inverse of mortality risk which is uncertainty regarding the death rate of the policy holders. Typically, this risk is managed through a combination of reinsurance and also the range of products that they offer. Life insurers typically sell both life insurance and retirement products. Since these products provide a natural hedge against each other with respect to longevity risk. Let's now look at market risk. This is the risk that changes in market conditions reduce the profits of the insurance company, and it includes both interest rate risk, which has changes in interest rates, and also credit risk, which is default by the borrower or the issuer of fixed income investments. For P&C business, the market risk is primarily in relation to their investment portfolio and tends to be managed through having a diverse portfolio spread across equities and fixed income products. Whereas for life insurance, they're exposed to credit risk on their investment portfolio, but their interest rate risk exposure is on both the investment portfolio and on the future benefit payments to policy holders. This is because the payments are very long term and guaranteed, so the present value of the commitments will vary with interest rates. This risk tends to be managed by ensuring that the cash flows on the investments are well matched with the expected payouts on the policies, and that's usually achieved by investing heavily in long-term fixed income investments such as government bonds. The final risk is regulatory risk. This is the risk that capital regulation or even tax regulation places a constraint on their underwriting activities, or restricts their ability to pay a dividend. This has been a particular concern in recent years as changes to capital regulation in Europe has created a lot of uncertainty as to how much capital insurers will need in the future. This was exacerbated by more recent changes to the tax system, particularly US tax reform, which has changed how both insurance companies are taxed on their profits, but also impacts on how policy holders are taxed on their benefits.