ACCA Advanced Financial Management (AFM) Practice Exam

Insurance companies play a significant role in the investment landscape primarily as massive investors in corporate stocks and bonds. This involvement stems from their need to manage and grow the funds collected from policyholders, which are held as reserves to pay future claims.

The funds are invested in a diversified portfolio that includes corporate equities and debt instruments. The rationale behind this strategy is to ensure that these companies can meet their long-term obligations while also generating a stable return on investment. Corporate stocks provide opportunities for equity growth, while bonds offer fixed income, which is critical for liability management.

Given their scale, insurance companies can influence market dynamics and can also undertake sizable investments that smaller retail investors cannot. Their investment strategies are managed not only for yield but also for risk assessment and liquidity considerations, which is a hallmark of large institutional investors in the financial markets.