Jonida Vesiu: Definitions vary, but I think of “vanilla” as the assets that have historically formed the building blocks of insurers’ balance sheets: highly rated government bills and bonds, investment-grade corporate bonds, and high-quality short-term instruments held for liquidity.
These have low credit risk, predictable cash flows, and deep, transparent markets with real-time pricing, trade data, and analyst reports – qualities that matter to insurers because insurance is a liability-driven business. Their cash outflows can be unpredictable, so access to liquid assets is essential. Insurers seek investments with steady cash flows, and that can be easily priced and traded close to their par or fair value.
Insurers have built their internal systems around this steady, reliable data. It directly supports their risk and capital management processes.
By contrast, when people talk about “exotic” in the context of insurers, they mean alternative assets or private market investments with less transparency and liquidity. They can provide diversification and higher yields, but they also bring more complex cash‑flow profiles, valuation judgment, and are operationally more demanding.
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