Premiums are collected before most claims are paid. Float is the pool of funds held by an insurer during the interval between receipt of premium and payment of claims. Those funds are available for investment and can generate significant income.

The size of the float depends on the volume of business written and the length of time claims remain unpaid. Long-tail liability lines create larger, longer-lasting float than property lines that settle quickly. Investment returns on float have historically been an important component of insurer profitability.

Float is not free capital; it is a liability that must be reserved for future claims. Poor underwriting can erase investment gains when losses exceed expectations. Management of float involves matching investment duration and risk to the expected payout pattern of the liabilities.

• Funds held between premium collection and claim payment
• Available for investment by the insurer
• Larger in long-tail lines of business
• Must be backed by adequate loss reserves