Where net gains (losses) is the sum of realized gains (losses) plus the change in unrealized gains. Investment return has the two mechanisms: investment yield and net capital gains. Unlike the investment yield which reflects risk and historical performance the investment return measures current performance. However this measure has its own short comings. Gains and losses are often due to unpredictable market fluctuations in interest rates or other macro variables and not to superior performance. The related gains and the losses are extremely volatile and are typically transitory. In addition to the extent that insurers engage in asset liability management gains or losses on investments are at least partially offset by unrecognized gains or losses on liabilities.
The investment return is measured as follows:
The investment return is measured as follows: