《金融市场与机构 Jeff Madura》ch26.pptVIP

26 Insurance Operations Chapter Objectives Present the two major areas of insurance: 1) life and health and 2) property and casualty Describe the different types of insurance policies and their sources of funds Describe the main uses of insurance company funds Explain the exposure of insurance companies to various forms of risk Describe the regulatory environment of insurance companies Insurance Companies Provide contractual risk management for: Risks of insurable asset losses (auto insurance) Risks of liability claims (product liability) Risk of large medical costs (health insurance) Risk of disability (disability insurance) Risk of premature death (life insurance) Risk of longevity (annuities) Insurance Companies, cont. Major capital market intermediary Major investor in corporate (life) and state and municipal bonds (property/casualty) Major long-term commercial mortgage lender (life) Mutual or stock form of ownership Premium and investment revenue Losses and loss adjustment expenses Insurance Concepts Pure vs. financial risk Insure fortuitous, independent risk occurrence Premium covers losses, administrative expenses and profits Insured contracts for known loss (premium) in return for protection Moral hazard and adverse selection Background Life insurance companies Provide risk management contracts for individuals and businesses Risk areas include premature death, health maintenance costs, and disability Life insurance provides cash benefits to the beneficiary of a policy on the policyholder’s death Life insurance premiums reflect Probability of making payment to the beneficiary Size and timing of the payment Have portfolios of policies and use mortality figures and actuarial tables to forecast claims Types of Life Insurance Policies Types of Life Insurance Policies Whole life insurance includes both a death benefit (term insurance) and a savings component that Builds a tax sheltered cash value amount for the future for the owner of the policy Generates periodi