Transcript T1-1 Why Study Financial Markets

Chapter Nineteen
INSURANCE COMPANIES AND
PENSION FUNDS
Copyright © 2000 Addison Wesley Longman
Slide #19-1
Insurance Companies: Major Employer
Copyright © 2000 Addison Wesley Longman
Slide #19-2
Fundamentals of Insurance
1. There must be a relationship between the insured and the beneficiary.
2. The insured must provide full and accurate information to the insurance
company.
3. The insured is not to profit as a result of insurance coverage.
4. If a third party compensates the insured for the loss, the insurance
company’s obligation is reduced by the amount of the compensation.
5. The insurance company must have a large number of insured so that
the risk can be spread out among many different policies.
6. The loss must be quantifiable.
7. The insurance company must be able to compute the probability of the
loss’s occurring.
Copyright © 2000 Addison Wesley Longman
Slide #19-3
Number of Life Insurance
Companies in the U.S., 1950-1997
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Slide #19-4
Types of Insurance
Life Insurance
Health Insurance
Property and Casualty Insurance
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Slide #19-5
Life Insurance
Term Life
Whole Life
Universal Life
Annuities
Assets and Liabilities of Life Insurance
Companies
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Slide #19-6
Expected Life of Persons at
Various Ages
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Slide #19-7
Annual Premiums
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Slide #19-8
Distribution of Life
Insurance Company Assets
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Slide #19-9
Mortgage Investment
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Slide #19-10
Property and Casualty Insurance
Today
Property Insurance
Named-peril policies
All-risk policies
Casualty Insurance
Reinsurance
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Slide #19-11
Insurance Management
Screening
Risk-Based Premium
Restrictive Provisions
Prevention of Fraud
Cancellations of Insurance
Deductibles
Coinsurance
Limits on the Amount of Insurance
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Slide #19-12
Pension Plan
Definition: An asset pool that
accumulates over an individual’s
working years and is paid out during the
nonworking years.
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Slide #19-13
Types of Pensions
Defined-Benefit Pension Plans
Annual Payment = 2% x average of final 3
years’ income x years of service
Defined-Contribution Pension Plan
Private Pension Plans
Public Pension Plan
Social Security
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Slide #19-14
Private Pension Plan Assets
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Slide #19-15
Social Security Decreasing,
Participants Increasing
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Slide #19-16