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Financial Institutions other than Depository Financial Institutions

Financial Institutions other than Depository Financial Institutions . Keys To Success. Distribution Capabilities Funding/Liabilities Assets/Fund deployment (including investment) Compliance Product Pricing Risk Control Operational Efficiency. Life Insurance Companies. Distribution

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Financial Institutions other than Depository Financial Institutions

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  1. Financial Institutions other thanDepository Financial Institutions

  2. Keys To Success • Distribution Capabilities • Funding/Liabilities • Assets/Fund deployment (including investment) • Compliance • Product Pricing • Risk Control • Operational Efficiency

  3. Life Insurance Companies • Distribution • Funding – insurance policy issuance • Assets - investments • Compliance • Product pricing • Underwriting of policies • Product offered • Loss & cost analysis • Risk control • All risks faced by banks (less liquidity risk) • Additional risk: uncertainty of liabilities • Operational efficiency • Over 8000 companies • Largest change: Brokered to to captive agents • Deal with state regulation

  4. Life Insurance Balance Sheet

  5. Life Insurance Balance Sheet

  6. Health Insurance • Mostly part of life companies • Very different business • Most important: • Operational efficiency • This is a processing business • Pricing of products • Compliance/regulatory relationships • Investment performance is far less important • Vast majority of funds in/out in one year

  7. P&C Insurance vs. Life Ins. • Reduced spread of risk • Natural disasters • Shorter-term policies (liabilities) • Less investments, so performance not as significant • While P&C industry premiums > life industry premiums, less than half the investments • Much more volatile short-term earnings

  8. P&C Abbreviated Balance Sheet

  9. P&C Balance Sheet

  10. Simple Insurance Income Statement

  11. Finance Companies • Like banks, but not really • Borrow and lend • No insured deposits • Must issue bonds/commercial paper for funding • Higher capital ratios • Less regulation • Lower-quality borrowers • Independent finance companies – R.I.P. • Squeezed between banks and securitization • Only captive finance companies still around • GE Capital. GMAC, FMC • Product expertise & sales support

  12. Mutual Funds • Only marginally “Institutions” • Each fund is a corporation • Investment results flow directly to investors (less expenses) • Keys to success: • Investment results • Distribution • “Sponsored” by investment advisor

  13. Pension Plans • Captive customers • Important factors: • Investment performance • Risk control • Efficiency • Extremely long-term liabilities • Sponsored by corporation or government

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