Chapter 15: Insurance Companies – Flashcards

the primary function of insurance companies is to compensate policyholders if a pre specified event occurs, in exchange for premiums paid -sell a variety of investment products similar to other FI's

assess and price risk

sell insurance contracts

1. Life insurance: policies that provide protection against untimely death or illness, and/or transfer wealth through time to retirement 2. property-casualty insurance: protects against property damage, personal injury and liability associated with specific events

compared to 2,300 IC's in 1988, in 2010 only 1,000 exist, the industry has consolidated taking advantage of scale and scope economies

1. collect premium from individual and make portfolios when time is due, they pay back. 2. sell annuities for retirement 3. manage pension plans 4. provide accident and health insurance

critical to an IC profitability and survival - underwriting decisions determine which risks are accepted and which are not - determine how much to charge for accepted risk

1. Term life 2. whole life 3. endowment life 4. variable life

are offered to individuals, policy holders make premium payments in exchange for coverage

-beneficiary receives payout at the time of death -if insured lives beyond the term of the contract, no benefits are paid.

-policy protects over entire life time -beneficiary receives face value of contract upon death

-beneficiary receives payment at the time of death -if insured lives beyond the term of the contract, insured receives face value of the contract

-premiums are invested in market securities -value of policy depends on the value of the securities

-allows the insured to change both the premiums and the maturity of the contract

- a universal policy where the premiums are invested in variable rate earning assets

- To provide insurance coverage for a number of people under one contract known as the single master contract or master policy. -has two parts contributory, employer and employee share premiums and noncontributory , costs are borne to the employer

protects lenders against borrower death

investments vehicles that liquidates a fund (pay investors) over a long period of time

compete with other financial service companies

are instrumental in many of these plans

- gives states responsibility for insurance field -National Association of Insurance Commissioners (NAIC) has developed a coordinated examination system

run by insurance companies -contributors are only paid when IC's fails (except in NY)

Insurance companies, commercial banks, and investment banks may now affiliate with each other and engage in similar lines of business. These powers were granted by the:

REPORTS TO CONGRESS AND THE PRESIDENT ON THE INSURANCE INDUSTRY

One of two main sectors (other is life-health); covers damage to property or legal liability to others on the property. (Includes personal and commercial)

offers protection against legal liability exposure

risk that premiums are insufficient to cover losses and administrative expenses after taking into account investment income

The combination or sum of the loss and expense ratios.

New investment gain/loss divided by total cash plus invested assets

Combined Ratio - Investment Income Ratio

-chartered at the state level -regulated by state commissioners -state guarantee fund provide some protection to policyholders -NAIC provides services to state regulatory commissions such as the Insurance Regulatory Information System (IRIS)