In the earlier section of this chapter, we mentioned how insurance companies make their money. Just to summarize, if 1000 people buy policies by paying 1500 USD each as insurance premium, then the insurance company gets 1,500,000 USD. There could be cases where some of this amount goes towards paying claims. Insurance companies also take reinsurance to mitigate the risk of claim amount exceeding premium amount. The amount an insurance company makes is typically the difference of amount earned via premium and amount spent due to claim payouts and expenses. 

Insurance companies look at increasing the profitability by investing this amount. They invest the amount into financial instruments like bonds, derivatives, stock market, and so on. The amount which an insurance company can invest may be governed by a regulatory body.

These investments help the insurance company keep the right amount of working capital and at the same time make surplus funds earn.