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39 Cards in this Set
- Front
- Back
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what are the two sources of income for an insurance company?
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1. underwriting income (the insurance premium)
2. investment income |
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what is the equation for an insurance company's profits?
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profit= premiums + investments - operating expense - payments
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what does life insurance insure against?
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death
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what is indemnity insurance?
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insurance company agrees to indemnify (reimburse) insured for covered medical/hospital expenses; deductibe/co-pay protect insurance company from fraud
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what is managed care insurance?
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HMOs- Health Maintenance Orgs.
PPOs- Preferred Provider Orgs. POSs- Point of Service Orgs. these put constraints on doctor/hospital + type of service provided |
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What is P&C insurance?
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Property and Casualty Insurance
protects against: fire, flood, vehicle collisions, theft |
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What is Liability Insurance?
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risk insured against is litigation
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What is disablity insurance?
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risk insured against is inability of employed persons to earn an income
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What is the difference between guaranteed renewable and noncancellable?
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guaranteed renewable- insurer cannot change time but can change premium for entire class of policy
noncancellable- insurer can make no changes |
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What is Long-Term Care Insurance?
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risk insured against is outliving assets and being unable to care for oneself
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What is a guaranteed investment contract (GIC)?
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0 coupon bond with an insurance company; when bond matures insurance company must pay principle + guaranteed creiting rate
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What is an annuity?
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"a mutual fund in an insurance wrapper"; because of insurance wrapper annuity gets preferential tax treatment- income and realized capital gains are not taxable if not withdrawn from the annuity; also insurance company may promise to pay back investor's original investment no matter what
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What problems do the insurance industry face?
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1. time + magnitude of payments is uncertain
2. lag between receipts + payments |
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What is the NAIC?
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National Association of Insurance Commissioners- voluntary association of state insurance commissioners that creates models for insurnace
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Who monitors insurance companies?
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accountants and auditors, rating agencies, government regulators
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What are STAT surplus and GAAP surplus?
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STAT surplus- state statute requires insurance company to maintain a surplus
GAAP surplus- accoutants require the surplus |
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What is the structure of an insurance company?
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1. home office- guarantor, manufacturer of policy
2. investment company 3. distributor |
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What is bankassurance?
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commercial bank distributes insurance company products
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What is a "virtual insurance company"?
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all work outsourced: designing of contracts, reinsuring policies (transfer risk to another company); outsource investments; brokers distribute
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What is the difference between a stock insurance company and a mutual insurance company?
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stock insurance company- owned by independent shareholders; short-term view
mutual insurance company- no stock, no external owners; long-term view |
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What is demutualization?
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insurnace company changes from a mutual insurance company to a stock insurance company
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What are the benefits and negatives of a mutual insurance company?
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positives
1. no short-term interests 2. no shareholders, so profits can reduce premiums 3. longer time-frame for investments; higher return negatives 1. too long a horizon, inefficient |
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Why do insurance companies go public?
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1. more able to raise equity capital
2. stock is a better acquisition currency than cash 3. hire better executives |
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What is a Mutual Holding Company (MHC)?
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upstream mutual company (no stock holders) then up to 49.9% of company becomes a subsidiary held in stock
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What is term life insurance/pure life insurace?
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pays if you die before terms is over, no value if you die after; policyholder cannot borrow against it
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What is the difference between level term and annual renewable term?
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level term has same premium during period; annual renewable term is increasing
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What is whole life insurance?
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policy has a growing cash value which holder can borrow against or withdra
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What is guaranteed cash value life insurance- non-particpating vs. participating?
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guarantees a minimum cash value at the end of the year; non-participating has no upside; participating means cash value depends on company's investments
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What is variable life insurance?
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policy holder chooses in which accounts money is invested
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What is survivorship/second to die insurance?
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two people are insured and policy pays benefit when the second person dies; annual premium is usually less
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What is the difference between an insurance company's general account products and its separate account products?
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general account is a liability of insurance company
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Are risks greater for L&H or P&C?
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P&C because of randomness of natural catastrophes, and unpredictability of court awards; life companies have less common stock, longer maturity bonds
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Insurance company tax exemptions?
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inside buildup of cash value is not taxed as either income or capital gains; neither is beneficiary of an insurance policy subject to income tax
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What is the Glass-Steagall Act (33)?
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separated commercial banking, investment banking, and insurance; did not want one source to control funding
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What is the Gramm-Leach-Bliley Act (GLB) (99)?
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removed Glass-Steagall Act; led to CitiGroup
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Why are internationals buying US insurance and financial companies?
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1. rapid growth of US financial businesses relative to international
2. attractive demographics + US clients 3. less regulated US insurance industry |
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What is an IRA?
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individual retirement account; most set up by employee
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What is a 401(k)?
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set up by employer
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What are traditional/Roth/rollover IRAs?
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traditional- contributions tax deductible
Roth- contributions taxed, distributions not taxed rollover- individual leaves company but is able to continue retirement plan |
