“My bet is that the insurance company isn’t making any net profit once the two are netted out. But the Nips are famous for tolerating break-even/unprofitable enterprises”
I think there is some confusion here. The insurance company wants to make profit in insurance business i.e. estimating cost of risk payout and charging premiums to cover that and profit. Buying treasuries is not any more interesting to them than you and me keeping a few hundred $ in checking/savings account. They have enough risk to manage in insurance business and would probably do a bad job if they try to manage money risk – that may blow up their insurance business if something goes wrong. Imagine getting hit with hurricane Andrew or Katrina in a down market – fast ticket to bankruptcy (and may be even to jail – for underwriting much more than loss reserve)
