Finance 310 Chapter 15
50
Life insurers write over ___% of all health premiums
1) Whole LIfe 2) Term Life 3) Endowment Life 4) Variable LIfe 5) Universal LIfe 6) Variable Universal Life 7) Group Life Insurance 8) Credit LIfe Insurance
8 types of life insurance policies
lower
Since Life insurers can diversify customer specific risk, they are able to offer insurance services at a cost _____ than any individual could achieve on his/her own
income individual group
Since Life insurers can diversify customer specific risk, they are able to offer insurance services at a cost lower than any individual could achieve on his/her own, this allows the transfer of _____ related uncertainties from who to who.
insurance guarantee funds
State promote ___ ___ ___
renewable increases
Term life is ______, but premiums _____ as the policyholder ages
systemic risk monitor regulatory underserved
The FIO is supposed to identify ____ ____ arising from insurers, _____ international insurance events, eliminate state _____ gaps, and encourage the offering of insurance products to ______ segments
Financial Holding Company (FHC)
The Financial Services Modernization Act (FSMA) of 1999 allowed CBs, IBs, and ICs to exist as subsidiaries under one
large
The ____ firms dominate the P&C industry
Private Passenger Auto Physical Damage Homeowners Multuple Peril
___ ___ ___ ______ and ___ __ ____ also make up a large percentage of P&C lines (14% and 14.20% respectively)
Policy loans
___ ____ are loans made by an insurance company to its policyholders using the policy as collateral
underwriting
_____ decisions determine how much to charge (in the form of premiums) for those risks that are accepted by the company
National Association of Insurance Commissioners (NIAC)
has developed a coordinated examination system to examine insurers
Guaranteed Investment Contracts (GICs)
instrumental in many of the private pension funds
Property Insurance
involves coverage related to the loss of real and personal property
ordinary life insurance
is marketed to individuals - policyholders make periodic premium payments in exchange for coverage
Reinsurance
is when insurance companies can attempt to share risks by buying insurance from other insurance companies
bonds
make up a majority of P&Cs assets
corporate bonds
makes up most of life insurance assets
Private Passenger Auto Liability
makes up over 20% of P&C lines (This is largest line)
Net policy reserves
makes up over 50% of liabilities and equities of insurance companies
actuaries
reduce the risks of underwriting insurance
adverse selection problem
the problem that customers who apply for insurance policies are more likely to be those in need of coverage
Property-Casualty (P&C) Insurance Companies
these insurance companies protect against personal injury and liabilities associated with specific events
Dodd Frank bill
what created the Federal Insurance Office (FIO) that reports to Congress and the President on the insurance industry
market securities
with variable life, the premiums are invested in what?
Federal Insurance Office (FIO)
the ____ ___ ____ reports to Congress and the President on the insurance industry
Variable Universal Life
A universal policy where premiums are invested in variable rate earnings assets
Universal Life
Allows the insured to change both the premiums and the maturity of the contract over the life of policy
mortgaged backed securities commercial loans commercial real estate corporate bonds
As the crisis began life insurers experienced losses on __ __ ____, ___ ___, particularly ___ ___ ___ and on ___ ___
Insurance underwriters
Assess and price risk for insurance companies
maturity
Assets and liabilities of insurance companies tend to have the same ______
Endowment Life
Beneficiary receives payment if insured dies before retirement
federal regulator
During the financial crisis Congress considered adding a __ ____ of the insurance industry, but left regulation to the states
2600
Currently about ____ companies sell property-casualty (P&C) insurance
separate account business
Funds in this are monies for which the insurer maintains separate accounting (annuities and certain insurance policies)
an employer
Group life insurance usally available through what?
Insurance COmpanies
IC stands for
individual states
ICs are regulated by
pension fund
In 2010, insurers administered more than $2.3 trillion of __ ____ assets
payouts
In terms of liabilities, we have like loss reserves and loss adjustment expenses. Those are funds held to offset ____.
accept underwrite insurance premiums
Insurance companies ____ or _____ risk that a prespecified event will occur in return for ___ ____
investment
Insurance companies also sell a variety of ______ products similar to other FIs
an asset
Reinsurance also shows up on BS as:
insurance companies
Insurance guarantee funds are by by whom?
Life Insurance Property-casualty insurance
Insurance is broadly classified into two groups
surplus
Investment returns are uncertain for P&C so _____ is absolutely needed
risk intermediation time intermediation
Life Insurance companies undertake what two things
long term assets
Life insurance companies invest in a lot of:
annuities pension plans accident and health insurance
Life insurers also: - Sell _____ - Manage ___ ____ - Provide ___ and ___ ____.
risk customer specific risk
Life insurers pool the _____ of individuals to diversify away some of the ___ - ___ ____
health premiums
Life insurers write over 50% of all ___ ___
Annuities
Savings contracts that involve the liquidation of those funds saved over a period of time
Separate account business
Second largest liabiity on BS for life insurance companies
individuals
Ordinary life insurance marketed to whom?
liquid
P&C also hold more short term assets becuase they have to be more ____ to be able to make those payouts
short term assets
P&C have more __ __ ___ than life insurance companies do
Property-Casualty Insurance
P&C means
investment returns
P&Cs have been unprofitable so they have to rely on ___ ___ to remain profitable
less
P&Cs have more short term assets than life insurance companies because the loss rates associated with P&C companies are ____ predictable than they are for life insurance companies
future payouts
Policy Reserves is the PV of expected ___ ____
WHole life
Policy protects over entire lifetime
equity
Policyholders surplus for P&C is ____
Bonds (Largest) Corporate Equities
Property casualty insurance companies hold a great deal of _____ and some ___ ____
Risk intermediation
Property casualty insurance provides what?
NO
With term life, are benifits paid out if the insured lives beyond the term of the ontract
well
The life insurance industry performed ____ during the mid-2000s while the stock markets and the economy were performing well
events premiums
The primary function of insurance companies is to compensate policyholders if a prespecified ______ occurs, in exchange for _____ paid
Insurance Companies
The primary function of what is to compensate policyholders if a prespecified event occurs, in exchange for premiums paid
profit investments
The result of the fincial crisis on insurance companies was very large ____ declines in 2008 (over 50% declines from 2007) and continuing poor conditions in 2009 on more losses on ____
variable life
With this, premiums are invested in market securities
the securities
With variable life, the value of policy depends on the value of?
face value
With whole life, beneficiary receives __ ____ of contract upon death
94
Top 200 firms have _____ of market share for P&C
49
Top 50 firms have a ___% market share for P&C
Contributory Noncontributory
Two types of group life insurance
risks
Underwriting decisions determine which _____ are accepted and which are not
When an ICs fails (except in NY)
When do contributors of insurance guarantee funds pay
1) Whole LIfe 2) Endowment Life 3) Variable LIfe 4) Universal LIfe 5) Variable Universal Life 6) Group Life Insurance 7) Credit LIfe Insurance
Which life insurance policies accrue a cash value over time
State Insurance Commissions
Who charters and examines ICs
Both employer and employee cover share of premiums
With contributory group life insurance, who covers premiums
retirement face value
With endowment life, If insured lives to _____, the insured receives __ ___ of the contract.
assets liabilites
With insurance companies, the long term nature of _____ matches ____
mortality life time value of money
With life insurance, actuaries analyze _____ , produce ____ tables, and apply __ ___ __ ___ tools to price life insurance annuities and endowment policies
Costs borne entirely by the employer
With noncontributory group life insurance, who covers premiums
Accident and Health Insurance
accounted for more than $171 billion of premiums written in 2009
Life insurance companies
administer many private pension plans
The Financial Services Modernization Act (FSMA) of 1999
allowed CBs, IBs, and ICs to exist as subsidiaries under one Financial Holding Company (FHC)
annuities
are investment vehicles that liquidate a fund (pay investors) over a long period of time, i.e., regular payments are made to an annuitant
Private pension funds
compete with other financial service companies
McCarren-Ferguson Act of 1945
confirmed primacy of states over federal regulation of ICs
group life insurance
covers a large number of people under a single policy
moral hazard
occurs when, after an insurer and a customer enter into an insurance contract, the insured engages in risky behavior because the risk is covered
Casualty Insurance
offers protection against legal liability exposure
life insurance
policies provide protection against untimely death or illness, and/or transfer wealth through time to retirement.
Property casualty insurance
protects against personal injury and liability associated with specific events
credit life insurance
protects lenders against borrower death
Net Policy reserves
reflect payment commitments on existing policy contracts
corporate equities
second largest asset on BS of life insurance companies
insurance brokers/agents
sell insurance contracts