Untitled2_25 - Chapter 2 Introduction to financial systems...

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important than for depository institutions because they can predict with reasonable accuracy the future payments due to their customers. As a consequence they invest their funds in long-term securities (such as corporate bonds, stocks, and mortgages). Insurance companies The primary objective of insurance companies is to protect individuals and firms (known as policyholders) from adverse events. Insurance companies receive premiums from policyholders, and promise a compensation to policyholders if particular events occur. There are two main segments in the industry: life insurance on the one hand, and property and causality insurance on the other hand. Life insurance protects against death, illness, and retirement. They acquire premiums from the policyholders, and use them mainly to buy corporate bonds, mortgages, and stocks (amount limited by the legislation). In 2006 in the US, life insurance companies were the largest group among the contractual savings institutions with aggregate assets of $4.71 trillion as
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