{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Week 12 Lecture - Week 12 Insurance Investment Companies...

Info icon This preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
Week 12. Insurance, Investment Companies and Superannuation 1203AFE Money, Banking and Finance Chapter 16 Monday 20 October 2008
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
The purpose of this lecture is to help you to: Explain how the insurance mechanism works Outline the operation of insurers Describe the different types of insurance products Explain the functions of investment companies. Explain the various types of managed funds and the investment strategies they use Discuss the superannuation industry in Australia Describe cash management trusts and public unit trusts Define hedge funds and discuss the investment strategies they use. Objectives
Image of page 2
What is insurance??.. Why do we need insurance??.. Insurance is a product that reduces loss Insurance is necessity for everyone Some risks can be avoided, some cannot.. Methods of dealing with risk: Retention Loss control Transfer
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Insurance Insurance is the transfer of a pure risk to an entity that pools the risk of loss and provides payment if a loss occurs. Pure risks have two outcomes: loss or no loss. Insurance policies = contracts between the insurer and the insured. The insurer receives a fee - the premium. Insurance is beneficial because: Reduces fear Incentive for loss control Facilitates credit Capital formation
Image of page 4
Objective Risk The risk that insurers face once they have accepted the risk from the insurance purchasers is called objective risk . This is the deviation between actual losses and expected losses. Insurance is priced to cover expected losses and expenses. If loss levels are as predicted, the insurance mechanism works well.
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Reducing Objective Risk Insurance companies reduce objective risk in a number of ways: Using the law of large numbers Careful underwriting Co-insurance Loss sharing Restrictive covenants Reinsurance
Image of page 6
Privately Insurable Risks Certain conditions must be met before a private company can insure risk: There must be many similar exposure units so that risk can be predicted using the law of large numbers. Losses that occur should be accidental and unintentional. Losses must not be catastrophic. Losses should be determinable and measurable. Chance of loss should be calculable. The premium for insurance must be affordable.
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Regulation In Australia, insurance companies are regulated by APRA.
Image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern