Jasmina Labudović

THE INVESTMENTS OF LIFE INSURANCE COMPANIES

Summary

In this paper the author focuses to the investment portfolio of the life insurance companies. The work deals with defining of its concept and the way of its creating is also presented. The main purpose of portfolio developing is to manage optimal relation between risks and yields combining different assets. From this paper we can find out that creating of portfolio is not an intuitive undertaking. Selection of the assets for investment is not made randomly without detailed analysis, so we may say that creating of investment portfolio means very complex and meaningful undertaking.

The process of creating a portfolio must be in accordance with: obligations of the life insurance companies, expected yield profit, price policy and management of property and responsibilities strategy in life insurance companies. Every portfolio should be rebalanced ocassionally, ie to determine it's optimal structure again in order to reduce risk and provide higher lever of yields compared to certain level of risk as much as possible.

The most important functions of portfolio are: stabilization of incomes, risk adjustments in portfolio, diversification of the income sources, liquidity, protection from the interest rate fluctuations, flexibility of portfolio and harmonization of balance.

The life insurance companies may also invest their funds in short-term and long-term financial instruments or money and capital market instruments. Investment in some financial instruments (assets) has certain advantages and disadvantages, so investment in different financial assets reflects to the life insurer money flows, ie inflow and outflow of money. Long -term assets dominate in the structure of portfolio, although one part of the funds serves for the short-term investments in order to preserve liquidity.

Key words: significance of investment funds; portfolio; financial instruments; investments in EU; investments in the Republic of Serbia.