Life insurance o to be more successful having better

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Life Insurance- o to be more successful: having better actuaries to calculate better life expectancies. o usually more long term policies (whole life policies are norm and include savings plan of some sort) so larger amount of reserves o easier to calculate risk (actuarial risk) o size of claim certain o pooling effective bc no correlation of risks o what does balance sheet look like? on assets side lots of high yield stuff: equities, high yielding bonds, real estate, longer term investments bc not worried about liquidity bc claims are predictable. will also see a good amount of equity bc company is taking good amount of risk and needs that to back it up. P&L o to be more successful: managing risks by diversifying, making sure risks are independent. o usually shorter term policies – so these companies have less reserves o harder to calculate risk o size of claim can be uncertain
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o pooling ineffective bc correlation of risk (especially geographically) o why does return on assets not matter as much to P & L? lags are much shorter, so yield makes less of a difference. so what do you need to worry about? what kinds of risks do you want to insure? yes, diversify but even then which areas do you want to insure in? will fail when you choose the wrong types of risks to insure. o what does balance sheet look like? will hold a lot of marketable securities bc they are highly liquid. o hold good amount of capital bc risky business. o o what kind of assets? need to be liquid assets (usually lower yield). no regulatory obstacles so P and L hold more stocks, and their income is subject to federal income tax so they hold high proportion of municipal and other tax free bonds. P&L have more capital and equity because riskier. life insurance companies tend to fail bc of poor asset management. P and L fail more because of unpredictable surges in claims. 10. Why does catastrophe insurance present a challenge for the insurance market? a. Is catastrophe risk insurable? A risk is insurable if it can be insured profitably at some premium consumers are willing to pay. o problem for insurance market because size of losses is variable and can be a large issue because risks are correlated and large. claims are lumpy so there are liquidity issues. o can’t share the risk with many because everyone faces same risk. pooling doesn’t work because of this. so, it is possible to insure globally but not locally. o multinational insurance companies all pooling together could work because risk would be more diversified geographically. could happen through reinsurance market. what makes something insurable? must be able to charge premium that gives you a profit but consumers are willing to pay. not locally insurable but it is globally insurable. globally – relatively independent risks. how can you do global insurance? reinsurance.
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  • Fall '19
  • catastrophe insurance

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