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Insurance companies Insurance companies Are in the business of reallocating risk Actuarial liabilities : the PV of obligations to policy holders The Insurance Industry Life Insurance Companies Property and Casualty Insurance Companies Life Insurance Companies: Functions

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insurance companies2
Insurance companies
  • Are in the business of reallocating risk
  • Actuarial liabilities: the PV of obligations to policy holders
the insurance industry
The Insurance Industry
  • Life Insurance Companies
  • Property and Casualty Insurance Companies
life insurance companies functions
Life Insurance Companies: Functions
  • Protection against losses in income due to premature death
  • Protection against insufficient income due to longer than expected life
life insurance companies products
Life Insurance Companies: Products
  • Life Insurance
  • Annuities
  • Health Insurance
life insurance
Life Insurance

Individual life insurance

Permanent life insurance - Whole life insurance:

  • over the long run
  • constant premium
  • at maturity (65 or older) the insured receives face value
  • insured can borrow against accumulated cash value
  • insured entitled to dividends

Term insurance:

  • one to five years
  • actuaries are needed to calculate policy premiums based on probabilities of death

Group life insurance

Renewable term insurance

  • used by employers to cover many people under a single policy
annuities
Annuities

The reverse of life insurance

  • Life insurance - accumulation of funds
  • Annuities - liquidation of funds

Annuities come in many shapes and sizes

annuities8
Annuities

Term annuity

  • payments cease at a specific date
  • no actuarial calculation are needed
  • any FI can offer them

Life annuity

  • payments terminate upon the death of the annuitant or later
  • premiums require actuarial calculations
  • can be offered only by life insurance companies
health insurance
Health Insurance

Provide for ill-health risk above and beyond the coverage offered by the Canadian government

- Insured plans

- Uninsured plans

Over half of Canadians have private health insurance and the numbers are growing

life insurance companies ownership
Life Insurance Companies: Ownership

Mutual ownership

  • similar to credit unions
  • aimed at fending off takeover attempts from US firms
  • permanent insurance policyholders - one vote
  • permanent insurance policyholders -residual claimants, entitled to dividends

Joint stock companies

  • owned by shareholders, like any other corporation
  • can easily raise capital, compete, and consolidate

The trend is toward demutualization

life insurance companies regulation
Life Insurance Companies: Regulation

OSFI : oversight functions

CompCorp: provide liability insurance to policyholders

Portfolio investments by life insurance companies must meet the Prudent Person Test

Banks can sell insurance through specialized subsidiaries

the insurance industry12
The Insurance Industry
  • Life Insurance Companies
  • Property and Casualty Insurance Companies
property and casualty insurance companies
Property and Casualty Insurance Companies

Covers losses of property and legal liabilities

P&C Insurance

  • Automobile insurance
  • Personal property insurance
  • Commercial property insurance
  • Commercial liability insurance
  • Marine insurance
  • Reinsurance

Adjustment: arriving at a claim settlement

ice storm 1998
Ice storm 1998
  • The storm left 5 million people without power
  • Largest number of claims ever: 840,000
  • Payout ever: $1.44 b
  • The population spent $2.2 b as a result
  • 16,000 new jobs were created
  • No bankruptcy among insurance firms
insurance companies summary
Insurance companies: Summary
  • Main liability: claims by policyholders
  • Insurance industry: Life and P&C insurance companies
  • Life insurance companies sell life insurance, health insurance, and annuities
  • Life insurance industry is demutualizing
  • P&C insurance companies sell P&C insurance
  • Life insurance industry is consolidating while P&C is more fragmented
  • Competition from banks is heating up