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Portfolio Regulation of Life Insurance Companies and Pension Funds

E Philip Davis


This paper examines the rationale, nature and financial consequences of
two alternative approaches to portfolio regulations for the long-term institutional
investor sectors life insurance and pension funds. These approaches are,
respectively, prudent person rules and quantitative portfolio restrictions. The
argument draws on the financial-economics of investment, the differing
characteristics of institutions' liabilities, and the overall case for regulation
of financial institutions. Among the conclusions are:

These results have implications inter alia for an appropriate strategy of liberalisation.