金融市場與機(jī)構(gòu) Jeff Madura 26

26InsuranceOperationsChapterObjectivesPresentthetwomajorareasofinsurance:1)lifeandhealthand2)propertyandcasualtyDescribethedifferenttypesofinsurancepoliciesandtheirsourcesoffundsDescribethemainusesofinsurancecompanyfundsExplaintheexposureofinsurancecompaniestovariousformsofriskDescribetheregulatoryenvironmentofinsurancecompaniesInsuranceCompaniesProvidecontractualriskmanagementfor:Risksofinsurableassetlosses(autoinsurance)Risksofliabilityclaims(productliability)Riskoflargemedicalcosts(healthinsurance)Riskofdisability(disabilityinsurance)Riskofprematuredeath(lifeinsurance)Riskoflongevity(annuities)InsuranceCompanies,cont.MajorcapitalmarketintermediaryMajorinvestorincorporate(life)andstateandmunicipalbonds(property/casualty)Majorlong-termcommercialmortgagelender(life)MutualorstockformofownershipPremiumandinvestmentrevenueLossesandlossadjustmentexpensesInsuranceConceptsPurevs.financialriskInsurefortuitous,independentriskoccurrencePremiumcoverslosses,administrativeexpensesandprofitsInsuredcontractsforknownloss(premium)inreturnforprotectionMoralhazardandadverseselectionBackgroundLifeinsurancecompaniesProvideriskmanagementcontractsforindividualsandbusinessesRiskareasincludeprematuredeath,healthmaintenancecosts,anddisabilityLifeinsuranceprovidescashbenefitstothebeneficiaryofapolicyonthepolicyholder’sdeathLifeinsurancepremiumsreflectProbabilityofmakingpaymenttothebeneficiarySizeandtimingofthepaymentHaveportfoliosofpoliciesandusemortalityfiguresandactuarialtablestoforecastclaimsCashValueInsuranceGroupTypesofLifeInsurancePoliciesWholeLifeVariableLifeUniversalLifeTermInsuranceTermGroupTypesofLifeInsurancePoliciesWholelifeinsuranceincludesbothadeathbenefit(terminsurance)andasavingscomponentthatBuildsataxshelteredcashvalueamountforthefuturefortheownerofthepolicyGeneratesperiodiccashflowpaymentsoverthelifeofthepolicyfortheinsurancecompanytoreinvestPaysfixeddeathbenefitatdeathTypesofLifeInsurancePoliciesTermlifeinsurancecharacteristicsTemporary,providingdeathbenefitsonlyoveraspecifiedtermPremiumspaidrepresentinsuranceonlywithnosavingcomponentConsiderablylowercostfortheinsuredthanwholelife—abletobuymoreinsuranceprotectionforanyamountofpremiumTermisforthosewhowouldratherinvesttheirsavingsinothercontractsorsecuritiesTypesofLifeInsurancePoliciesVariablelifeinsuranceWholelifewithvariablecashvalueamountsCashvaluesinvestedinequitiesandwillvarywiththeinvestmentperformanceFlexiblepremiumoptionsince1984UniversallifeinsuranceCombinesthefeaturesoftermandwholelifeVariablepremiumsovertime—buystermsandinvestsdifferenceinavarietyofinvestmentsBuildsavaryingcashvaluebasedoncontributionsandinvestmentperformanceTypesofLifeInsurancePoliciesGroupplansEmployeesofacorporationofferedlifeinsuranceorlifeinsurancepurchasedonlifeofemployeeCashvalueorterminsuranceLowcost(term)becauseofitshighvolumeCancovergroupmembersanddependentsHealthCareInsuranceHealthmaintenanceorganizationsorHMOsIntermediariesbetweenpurchasersandprovidersofhealthcareAnnualfeeorpremiumCoversallmedicalexpensesMedicalstaffisdesignatedbytheHMOLossesinrecentyearsforHMOsSourcesofLifeInsuranceCompanyFundsCashvaluereserves—accumulatedcashvaluesowedinsureds(liability)Pensionreserves—accumulated“insured”pensioncommitments(liability)Annuityreserves—accumulatedannuitycommitments(liability)Unearnedpremiumincome—premiumsreceived;notyetearned(liability)Lossreserves--lossesincurred,notyetpaidCapitalfundsUsesofLifeInsuranceCompanyFundsMajorinvestorincorporatebondsGovernmentsecuritiesCommonstockCommercialmortgageRealEstatePolicyloanstoinsuredUsesofFunds—PolicyLoansPolicyloansareloanstopolicyholdersWholelifepoliciesBorrowuptothecashvalueofthepolicyGuaranteedinterestrateisstatedinthepolicyUsuallyusedbyborrowersduringperiodsofrisingratestolockinthelowerrateassociatedwiththeirpolicyInsuranceCompanyCapitalCapitalBuildcapitalbyissuingnewstock(stockcompanies)orretainingearningsUsedtofinanceinvestmentsinfixedassetsCushionagainstoperatinglossesCapitalrequirementsvarydependingonassetriskCredibilitywithcustomersisalsoenhancedbyadequatecapitalMutualcompaniesownedbypolicyholders—includesearningsretainedovertimeRegulationInsurancecompaniesarehighlyregulatedbystateinsuranceagenciesTheNationalAssociationofInsuranceCommissioners(NAIC)ProvidescoordinationamongstatesinregulatorymattersAdopteduniformregulatoryreportingstandardsStateRegulatorsMakesureinsurancecompaniesprovideadequateserviceStatesapprove/reviewratesAgentlicensureFormsareapprovedtoavoidmisleadingwordingRegulationInsuranceRegulatoryInformationSystemCompilesfinancialinformationandlistsofinsurersCalculates11ratiostoassessandmonitorfinancialhealthAssessmentsystemAbilityofthecompanytoabsorbeitherlossesoradeclineinthemarketvalueofitsinvestmentsReturnoninvestmentRelativesizeofoperatingexpensesLiquidityofthetheassetportfolioRegulationRegulationofcapitalIn1994companieswererequiredtoreportrisk-basedcapitalratiostoinsuranceregulatorsGoalsofrequirementsaretoDiscourageinsurancecompaniesfromexcessiveexposureBackhigherriskswithhighercapitalReducefailuresintheindustryRisksofLifeInsuranceCompaniesPureRiskofLifeInsurancePoliciesPensionCommitmentsandAnnuitiesContractsFinancialRiskincludesInterestRateRiskCreditRiskMarketRiskLiquidityRiskExposuretoFinancialRisksInterestrateriskFixedrateassetsincompanyportfolioshavemarketvaluessensitivetointerestratechangesFirmmeasuresandmanagesrisksCreditriskMortgages,corporatebondsandrealestateholdingscaninvolvedefaultInvestment-gradesecuritiesDiversifyportfolioamongdebtissuersExposuretoFinancialRisksMarketriskExistsbecauseeventslikesignificantmarketvaluedecreasesreducecapitalEconomicdownturnaffectsrealestateinvestmentsExposuretoFinancialRisksLiquidityriskoccursbecauseahighfrequencyofclaimsmayrequirethelifecompanytoliquidateassetsLifeinsurancecompanieshavehighcashflowfrompremiumstooffsetnormalcashneedsIncaseoflargedisaster(9/11)maybeforcedtosellassetstogeneratecashevenifmarketvalueislowCompaniestrytobalancetheagedistributionoftheircustomerbaseAsinterestratesrise,voluntaryterminationsofpoliciesoccurAssetManagementPerformanceissignificantlyaffectedbytheperformanceoftheassetsCompaniesgetpremiumsforseveralyearsbeforepayingoutbenefitsCompaniestrytomanagetheriskoflosseswithoffsettinginvestmentgainsordiversityofassetstheyholdDiversifyintootherbusinessestoofferawidevarietyoffinancialproductsPropertyandCasualtyInsurancePropertyinsurance(fireinsurance)Casualtyinsurance(liability)PerformanceandfinancialbondingPCVersusLifeInsuranceCompaniesPChaveshortercontractsPChavemorevariedriskareasLifecompanieslargerduetolong-termsavingsandpensioncontractsPChaswiderdistributionofOccurrencesPC’sneedliquid,marketableassetsPC’searningsmorevolatilePropertyCasualtyInvestmentNeedsTaxsheltering--majormunicipal/statebondinvestorLiquid,marketableassetsMarketablecorporateandgovernmentbondsListedcommonstockInflationhedge--commonstockReinsurancecontracts--managepurerisksValuationofanInsuranceCompanyValueofaninsurancecompanydependsonitsexpectedcashflowsandrequiredrateofreturnV=f[E(CF),k]

V

=Changeinvalueoftheinsurancecompany

k=ChangeinrequiredrateorreturnWhere:

E(CF)=Changeinexpectedcashflows+ValuationofanInsuranceCompanyFactorsthataffectcashflowsE(CF)

=ExpectedcashflowRf=RiskfreeinterestrateINDUS=PrevailingindustryconditionsforthecompanyWhere:E(CF)=f(ECON,Rf,INDUS,MANAB)ECON

=EconomicgrowthMANAB=Managementabilityofcompany++?ValuationofanInsuranceCompanyInvestorsrequiredrateofreturn

k

=f(Rf,RP)++Rf=RiskfreeinterestrateWhere:RP

=RiskpremiumPerformanceEvaluationCommonindicatorsofcompanyperformanceareavailableStatisticalanalysisofperformanceRatioanalysisTrendsovertimeComparetoindustryaverage