The idea that the insurance float is a source of perpetual and low-cost capital ignores the fundamental incentives for caution in the sector.
If we see the float as free capital, the dominant incentive is to invest aggressively to maximize returns.
However, the payments associated with future claims turn this capital into an eventual liability, requiring prudent reserve management.
A Nash equilibrium forms around capital preservation, as the risk of being unable to honor claims, as Japanese insurers faced with natural disasters have shown, far exceeds the gains from aggressive investing.
Ignoring this gain asymmetry is a risky strategy, as a default would have systemic consequences.