This document discusses international insurance regulation, specifically regarding the differences between property/casualty and life insurance contracts and their accounting implications. Key points include:
- Property/casualty contracts are usually short-term while life/annuity contracts are long-term, spanning decades.
- Claims outcomes for property/casualty insurance vary widely each year depending on events, while life insurance claims are more predictable.
- Statutory accounting principles (SAP) and generally accepted accounting principles (GAAP) have some differences in how they value assets and recognize revenues and expenses.
The document discusses how risk management information systems (RMIS) can help captive insurance companies overcome data challenges. It explains that captives face increasing regulatory requirements, financial reporting needs, and strategic goals that require efficient handling of large and diverse data. An RMIS can automate operations like underwriting, claims management, finance, and reporting. Selecting an RMIS requires considering the captive's unique needs, operations, and information flows. The system should integrate internal and external systems and be flexible enough to change with business needs.
The document discusses captives, which are special purpose insurance companies that insure the risks of their owners. It provides an overview of what captives are, their history and growth, types of captives, benefits of using a captive compared to commercial insurance, considerations for utilizing a captive such as ownership structure and domicile selection, and functions related to managing a captive.
Sometimes it’s difficult to decide which type of buy sell agreement to recommend when dealing with QPSC, S Corp, and LLCs. Should it be a stock redemption plan funded with employer owned insurance or a cross purchase plan funded by cross owned insurance?
Get expert insight from Russell E. Towers JD, CLU, ChFC
Vice President, Business & Estate Planning at Brokers' Service Marketing Group ( A brokerage general agency for financial professionals).
Chapter 6: FINANCIAL OPERATIONS OF I NSURERSMarya Sholevar
1-Liabilities: Loss Reserves
A loss reserve is the estimated cost of settling claims for losses that have already occurred but that have not been paid as of the valuation date . More specifically, the loss reserve is an estimated amount for (1) claims reported and adjusted but not yet paid, (2) claims reported and filed, but not yet adjusted, and (3) claims for losses incurred but not yet reported to the company .
Loss reserves in property and casualty insurance can be classified as case reserves, reserves based on the loss ratio method, and reserves for incurred but not reported claims.
2-Policyholders’ Surplus
Policyholders’ surplus is the difference between an insurance company’s assets and liabilities . It is not calculated directly—it is the “balancing” item on the balance sheet.
If the insurer were to pay all of its liabilities using its assets, the amount remaining would be policyholders’ surplus.
Surplus can be thought of as a cushion that can be drawn upon if liabilities are higher than expected.
Surplus represents the paid-in capital of investors plus retained income from insurance operations and investments over time.
The level of surplus is also an important determinant of the amount of new business that an insurance company can write.
3-Income and Expense Statement
The income and expense statement summarizes revenues received and expenses paid during a specified period of time .
Revenues are cash inflows that the company can claim as income. The two principal sources of revenues for an insurance company are premiums and investment income.
Earned premiums represent the portion of the premiums for which insurance protection has been provided .
Expenses Partially offsetting the company’s revenues were the company’s expenses, which are cash outflows from the business.
The major expenses for an Insurance Company:
Adjusting claims
Paying the insured losses
Underwriting
4-Measuring Profit or Loss
A simple measure that can be used is the insurance company’s loss ratio and expense ratio.
The loss ratio is the ratio of incurred losses and loss adjustment expenses to premiums earned .
Loss ratio= (Incurred losses+Loss adjustment expenses)/Premiums earned
The expense ratio is equal to the company’s underwriting expenses divided by written premiums .
Expense ratio=Underwriting expenses/Premiums written
5-Rate-Making Methods
This document provides an overview of the U.S. mortgage market. It discusses that mortgages allow most people to purchase homes by borrowing most of the cost. It then covers various types of residential mortgages, including fixed-rate, adjustable-rate, and other less common varieties. It also examines the institutions involved in originating, servicing, and investing in mortgages. A key topic is the securitization and secondary market for mortgages, where loans are pooled and sold as mortgage-backed securities.
Intro to Annuities and FINRA Rules - MJK Jan 8 2013Bill Despo
This document discusses various topics related to annuities, including changes in the annuity marketplace, concerns about the suitability of annuity sales to senior citizens, regulatory responses to senior abuse, and typical claims made in senior abuse cases involving annuities. It provides an overview of different types of annuities, benefits and disadvantages, as well as how annuities relate to 401k and IRA plans and trusts. It also discusses insurance company default risk and theories and factors considered for claims and damages calculations in annuity cases.
The document summarizes the benefits of establishing a Captive Insurance Company (CIC). It notes that a CIC allows businesses to lower insurance costs, expand coverage, ensure continuity of coverage, retain underwriting income, increase asset liquidity, control investment decisions, and enjoy significant tax benefits. Specifically, premiums paid to a CIC are tax deductible, underwriting income up to $1.2M is excluded from tax, and earnings can grow tax-deferred and may eventually be taxed at lower capital gains rates upon distribution. Overall, a CIC can improve cash flow, profits, and risk management for small businesses.
LifeHealthPro - Heres why cash value life insurance is a superior productJose Ariel Taveras
The document discusses the advantages of cash value life insurance over term life insurance and other financial assets. It outlines three main categories of advantages for cash value life insurance: 1) Tax advantages, such as tax-free growth of cash value and tax-free death benefits; 2) Financial advantages, as life insurance is designed using actuarial models to provide guarantees and potential increases in death benefits; and 3) Legal advantages, like state legal protections and guarantees of insurers. The document promotes cash value life insurance as a superior financial product compared to alternatives due to these inherent advantages.
The document discusses how risk management information systems (RMIS) can help captive insurance companies overcome data challenges. It explains that captives face increasing regulatory requirements, financial reporting needs, and strategic goals that require efficient handling of large and diverse data. An RMIS can automate operations like underwriting, claims management, finance, and reporting. Selecting an RMIS requires considering the captive's unique needs, operations, and information flows. The system should integrate internal and external systems and be flexible enough to change with business needs.
The document discusses captives, which are special purpose insurance companies that insure the risks of their owners. It provides an overview of what captives are, their history and growth, types of captives, benefits of using a captive compared to commercial insurance, considerations for utilizing a captive such as ownership structure and domicile selection, and functions related to managing a captive.
Sometimes it’s difficult to decide which type of buy sell agreement to recommend when dealing with QPSC, S Corp, and LLCs. Should it be a stock redemption plan funded with employer owned insurance or a cross purchase plan funded by cross owned insurance?
Get expert insight from Russell E. Towers JD, CLU, ChFC
Vice President, Business & Estate Planning at Brokers' Service Marketing Group ( A brokerage general agency for financial professionals).
Chapter 6: FINANCIAL OPERATIONS OF I NSURERSMarya Sholevar
1-Liabilities: Loss Reserves
A loss reserve is the estimated cost of settling claims for losses that have already occurred but that have not been paid as of the valuation date . More specifically, the loss reserve is an estimated amount for (1) claims reported and adjusted but not yet paid, (2) claims reported and filed, but not yet adjusted, and (3) claims for losses incurred but not yet reported to the company .
Loss reserves in property and casualty insurance can be classified as case reserves, reserves based on the loss ratio method, and reserves for incurred but not reported claims.
2-Policyholders’ Surplus
Policyholders’ surplus is the difference between an insurance company’s assets and liabilities . It is not calculated directly—it is the “balancing” item on the balance sheet.
If the insurer were to pay all of its liabilities using its assets, the amount remaining would be policyholders’ surplus.
Surplus can be thought of as a cushion that can be drawn upon if liabilities are higher than expected.
Surplus represents the paid-in capital of investors plus retained income from insurance operations and investments over time.
The level of surplus is also an important determinant of the amount of new business that an insurance company can write.
3-Income and Expense Statement
The income and expense statement summarizes revenues received and expenses paid during a specified period of time .
Revenues are cash inflows that the company can claim as income. The two principal sources of revenues for an insurance company are premiums and investment income.
Earned premiums represent the portion of the premiums for which insurance protection has been provided .
Expenses Partially offsetting the company’s revenues were the company’s expenses, which are cash outflows from the business.
The major expenses for an Insurance Company:
Adjusting claims
Paying the insured losses
Underwriting
4-Measuring Profit or Loss
A simple measure that can be used is the insurance company’s loss ratio and expense ratio.
The loss ratio is the ratio of incurred losses and loss adjustment expenses to premiums earned .
Loss ratio= (Incurred losses+Loss adjustment expenses)/Premiums earned
The expense ratio is equal to the company’s underwriting expenses divided by written premiums .
Expense ratio=Underwriting expenses/Premiums written
5-Rate-Making Methods
This document provides an overview of the U.S. mortgage market. It discusses that mortgages allow most people to purchase homes by borrowing most of the cost. It then covers various types of residential mortgages, including fixed-rate, adjustable-rate, and other less common varieties. It also examines the institutions involved in originating, servicing, and investing in mortgages. A key topic is the securitization and secondary market for mortgages, where loans are pooled and sold as mortgage-backed securities.
Intro to Annuities and FINRA Rules - MJK Jan 8 2013Bill Despo
This document discusses various topics related to annuities, including changes in the annuity marketplace, concerns about the suitability of annuity sales to senior citizens, regulatory responses to senior abuse, and typical claims made in senior abuse cases involving annuities. It provides an overview of different types of annuities, benefits and disadvantages, as well as how annuities relate to 401k and IRA plans and trusts. It also discusses insurance company default risk and theories and factors considered for claims and damages calculations in annuity cases.
The document summarizes the benefits of establishing a Captive Insurance Company (CIC). It notes that a CIC allows businesses to lower insurance costs, expand coverage, ensure continuity of coverage, retain underwriting income, increase asset liquidity, control investment decisions, and enjoy significant tax benefits. Specifically, premiums paid to a CIC are tax deductible, underwriting income up to $1.2M is excluded from tax, and earnings can grow tax-deferred and may eventually be taxed at lower capital gains rates upon distribution. Overall, a CIC can improve cash flow, profits, and risk management for small businesses.
LifeHealthPro - Heres why cash value life insurance is a superior productJose Ariel Taveras
The document discusses the advantages of cash value life insurance over term life insurance and other financial assets. It outlines three main categories of advantages for cash value life insurance: 1) Tax advantages, such as tax-free growth of cash value and tax-free death benefits; 2) Financial advantages, as life insurance is designed using actuarial models to provide guarantees and potential increases in death benefits; and 3) Legal advantages, like state legal protections and guarantees of insurers. The document promotes cash value life insurance as a superior financial product compared to alternatives due to these inherent advantages.
The document discusses various aspects of insurance companies, including their key operations. It begins by describing how insurance companies handled claims from the 2005 Mumbai floods. It then discusses the main operations of insurance companies, including rate making, underwriting, production (sales), claims settlement, reinsurance, and investments. Insurance companies collect premiums, pay claims, and invest premiums to earn income. They distribute policies through agents or direct selling. Reinsurance allows risks to be shared between insurers.
This document discusses different types of insurers and marketing systems. It describes the main types of private insurers as stock insurers, mutual insurers, reciprocal exchanges, Lloyd's of London, Blue Cross/Blue Shield plans, HMOs, and captives. It also discusses agents and brokers, and the main life and property/casualty insurance marketing systems which include personal selling by agents, direct response, worksite marketing, and independent agencies.
Captives are insurance companies owned by their insureds that provide tailored coverage and help stabilize insurance costs. Forming a captive can reduce operating costs through eliminating normal insurer overhead and realizing investment income. The key advantages are reduced costs, investment income, broader coverage, pricing stability, and increased control over the risk management process. However, captives also require capitalization and ongoing administrative costs to operate successfully.
Active Capital Reinsurance Ltd commenced operations in 2007, mainly providing credit-related reinsurance solutions to financial institutions in Latin America, and it has a general insurance and reinsurance license issued in Barbados.
The document provides an overview of the underwriting process. It defines underwriting as evaluating risks to determine whether to provide insurance coverage. An underwriter's role is to evaluate applications, accept or decline risks, and determine contribution amounts. Sound underwriting is important for the success of the Takaful operator and equitable treatment of participants. The underwriting process involves establishing files, evaluating factors specific to the type of coverage, determining rates, and setting policy terms. Underwriters make decisions on whether to reject risks, issue substandard policies, standard policies, or preferred policies. They also monitor policies ongoing. Agents play an important role by gathering information to assist underwriters.
The document discusses life insurance and general insurance accounts. It describes statutory books such as registers of policies and claims. It also discusses the revenue account format for life insurance which debits claims, annuities, surrenders and expenses, and credits the life assurance fund with premiums, consideration for annuities, interest, and reinsurance. The balance sheet format lists assets such as investments and amounts receivable, and liabilities such as share capital and fund balances.
Premium Financing as Tool for Life Insurance FundingJohn Oliver
Premium financing can be an effective solution for clients who do not want to liquidate assets to pay life insurance premiums. Interest paid on loans to pay premiums is usually not tax deductible as it is considered personal interest. Some exceptions exist, such as allowing deduction of up to $50,000 in interest on policies covering key persons. While the insurance and loan would be separate transactions, most premium financing programs involve borrowing from lenders related to the insurance carrier. Premium financing sources have expanded in recent years to include various banks and brokers. Eligibility for premium financing loans depends on meeting minimum requirements for loan size, net worth, and other factors like interest rates.
This document summarizes a lecture on the general business environment for life assurance companies. It discusses how the economic, legal, regulatory, and professional environments can impact insurer expenses, risk levels, and opportunities. Specifically, it notes that inflation can influence expenses, developing or volatile economies present higher risks, and legal/regulatory changes may constrain product design or contract terms over long time periods.
This document discusses captive insurance companies, which are insurance companies formed by businesses to insure their own risks or the risks of affiliated businesses. Captive insurance companies allow businesses to insure risks that are not covered by traditional commercial insurance, retain underwriting profits, take advantage of tax incentives, and provide asset protection and estate planning benefits. The document outlines how captive insurance companies work, the types of businesses that may benefit from them, requirements for legitimate captive insurance companies, and examples of policies that could be issued by captive insurers for different types of businesses.
- The document discusses risk management strategies used by financial institutions to manage credit risk and interest rate risk.
- To manage credit risk, institutions screen borrowers, specialize in certain industries/locations, monitor borrowers, require collateral, and ration credit.
- To manage interest rate risk, institutions conduct income gap analysis to assess how changes in interest rates impact earnings, and duration gap analysis to assess impacts on market value and capital. The analyses are demonstrated on sample bank and finance company balance sheets.
This document provides an overview of insurance. It discusses how insurance works by pooling funds from many insured entities to pay for losses some may incur. It also describes key concepts like insurable risk, indemnification, and the business model of insurers which involves underwriting policies and investing premiums to pay claims. The document outlines different types of insurance and principles like affordability and calculability of risk that make something insurable. It also discusses effects of insurance on risk taking and society.
Premium financing allows an irrevocable life insurance trust (ILIT) to take out loans to pay life insurance premiums on the insured's life. This reduces gift tax costs compared to paying premiums outright. The life insurance policy serves as collateral, and additional assets may also be pledged. At the insured's death, the loan is repaid from death benefits. Exit strategies like GRATs and IDITs can provide funds to repay the loan and maintain the desired death benefit amount. Premium financing provides estate tax liquidity but involves risks like policy lapse if not properly planned and executed.
- Insurance companies provide insurance policies to policyholders in exchange for premium payments. The policies are legally binding contracts where the insurance company agrees to pay specified sums if future events occur, such as death or an accident.
- Insurance companies accept the risk from policyholders in exchange for premiums. They determine which applications to accept and how much to charge through underwriting. Premiums provide stable revenue while payments to policyholders are the major expense.
- There are various types of insurance like life, health, property & casualty, liability, and investment-oriented products. Insurance companies combine these types of insurance in different ways and are regulated at the state level in the US.
This article takes the viewer through the Accounting Aspects related to Insurance under IFRS and the Income Tax requirements in India. It also touches upon the Direct Tax Code and its impact on Insurance based deductions.
The important functions of a financial manager include:
1. Providing capital for business operations through programs and maintaining relationships with investors.
2. Managing short-term financing from banks and collections from customers.
3. Planning and controlling business operations through reporting and evaluating performance.
Debentures are debt instruments issued by companies as evidence of debt. Common types include secured/unsecured, convertible/non-convertible, and redeemable/perpetual debentures. Preference shares are hybrid instruments with characteristics of both debt and equity.
The balance sheet shows a company's assets, liabilities, and shareholders' equity on a particular date. Ratio analysis evaluates the financial health and performance of
Unit Linked Insurance Policies (ULIPs) are life insurance policies that provide both risk coverage and investment. Most ULIPs offer a range of investment funds to suit different risk profiles and time horizons. Returns are not guaranteed as the investment risk is borne by the policyholder. Charges include premium allocation charges, mortality charges, fund management fees, and surrender charges. The document provides answers to frequently asked questions about ULIPs, such as what is a unit fund, benefits payable, consequences of discontinuing premiums, and fund performance reporting.
This document discusses different methods of financial risk control, including internal and external risk financing. Internal risk financing involves funding losses from regular earnings, creating a fund to cover large losses, or self-insuring. External risk financing primarily uses insurance. The document outlines different types of insurance policies, including liability insurance, employer's liability, professional indemnity, products liability, and personal accident insurance. It provides details on how each policy covers losses and exceptions to the coverage.
Strategic Considerations in Financial ReinsuranceAmit Ayer
As reinsurers seek alternative models outside of traditional life reinsurance, reinsurers are placing a renewed focus on financial reinsurance, in particular as asset-intensive reinsurance has been in general curtailed by the low rate environment. Attached are materials focusing on the strategic implications of financial reinsurance, focusing on in-force products.
The document provides information about the characters and plotlines in Geoffrey Chaucer's Canterbury Tales. It describes each of the pilgrims that are part of the story, including their occupations, physical descriptions, and the tales they tell. It also summarizes the overall story structure, explaining that the pilgrims are traveling to Canterbury to visit the shrine of Saint Thomas Becket and will each tell tales during the journey. Key details about the Wife of Bath, the Pardoner, and Chaucer's intentions in writing the story are also summarized.
Ajay Bijli founded PVR Cinemas in India in 1995, bringing the first multiplex cinema concept to the country. PVR introduced innovations like online and mobile ticketing, visual seat selection maps, and luxury food and beverage service within theaters. The company targeted both metro and non-metro audiences across India with multiple brands. PVR saw strong financial growth over its first decade and received several awards for its success and leadership in the cinema industry. While facing increasing competition from chains like INOX and Adlabs, PVR plans to expand further through collaborations, new technologies, and potentially producing its own films. A SWOT analysis finds PVR's strengths in its film distribution business and first mover advantage
The document discusses various aspects of insurance companies, including their key operations. It begins by describing how insurance companies handled claims from the 2005 Mumbai floods. It then discusses the main operations of insurance companies, including rate making, underwriting, production (sales), claims settlement, reinsurance, and investments. Insurance companies collect premiums, pay claims, and invest premiums to earn income. They distribute policies through agents or direct selling. Reinsurance allows risks to be shared between insurers.
This document discusses different types of insurers and marketing systems. It describes the main types of private insurers as stock insurers, mutual insurers, reciprocal exchanges, Lloyd's of London, Blue Cross/Blue Shield plans, HMOs, and captives. It also discusses agents and brokers, and the main life and property/casualty insurance marketing systems which include personal selling by agents, direct response, worksite marketing, and independent agencies.
Captives are insurance companies owned by their insureds that provide tailored coverage and help stabilize insurance costs. Forming a captive can reduce operating costs through eliminating normal insurer overhead and realizing investment income. The key advantages are reduced costs, investment income, broader coverage, pricing stability, and increased control over the risk management process. However, captives also require capitalization and ongoing administrative costs to operate successfully.
Active Capital Reinsurance Ltd commenced operations in 2007, mainly providing credit-related reinsurance solutions to financial institutions in Latin America, and it has a general insurance and reinsurance license issued in Barbados.
The document provides an overview of the underwriting process. It defines underwriting as evaluating risks to determine whether to provide insurance coverage. An underwriter's role is to evaluate applications, accept or decline risks, and determine contribution amounts. Sound underwriting is important for the success of the Takaful operator and equitable treatment of participants. The underwriting process involves establishing files, evaluating factors specific to the type of coverage, determining rates, and setting policy terms. Underwriters make decisions on whether to reject risks, issue substandard policies, standard policies, or preferred policies. They also monitor policies ongoing. Agents play an important role by gathering information to assist underwriters.
The document discusses life insurance and general insurance accounts. It describes statutory books such as registers of policies and claims. It also discusses the revenue account format for life insurance which debits claims, annuities, surrenders and expenses, and credits the life assurance fund with premiums, consideration for annuities, interest, and reinsurance. The balance sheet format lists assets such as investments and amounts receivable, and liabilities such as share capital and fund balances.
Premium Financing as Tool for Life Insurance FundingJohn Oliver
Premium financing can be an effective solution for clients who do not want to liquidate assets to pay life insurance premiums. Interest paid on loans to pay premiums is usually not tax deductible as it is considered personal interest. Some exceptions exist, such as allowing deduction of up to $50,000 in interest on policies covering key persons. While the insurance and loan would be separate transactions, most premium financing programs involve borrowing from lenders related to the insurance carrier. Premium financing sources have expanded in recent years to include various banks and brokers. Eligibility for premium financing loans depends on meeting minimum requirements for loan size, net worth, and other factors like interest rates.
This document summarizes a lecture on the general business environment for life assurance companies. It discusses how the economic, legal, regulatory, and professional environments can impact insurer expenses, risk levels, and opportunities. Specifically, it notes that inflation can influence expenses, developing or volatile economies present higher risks, and legal/regulatory changes may constrain product design or contract terms over long time periods.
This document discusses captive insurance companies, which are insurance companies formed by businesses to insure their own risks or the risks of affiliated businesses. Captive insurance companies allow businesses to insure risks that are not covered by traditional commercial insurance, retain underwriting profits, take advantage of tax incentives, and provide asset protection and estate planning benefits. The document outlines how captive insurance companies work, the types of businesses that may benefit from them, requirements for legitimate captive insurance companies, and examples of policies that could be issued by captive insurers for different types of businesses.
- The document discusses risk management strategies used by financial institutions to manage credit risk and interest rate risk.
- To manage credit risk, institutions screen borrowers, specialize in certain industries/locations, monitor borrowers, require collateral, and ration credit.
- To manage interest rate risk, institutions conduct income gap analysis to assess how changes in interest rates impact earnings, and duration gap analysis to assess impacts on market value and capital. The analyses are demonstrated on sample bank and finance company balance sheets.
This document provides an overview of insurance. It discusses how insurance works by pooling funds from many insured entities to pay for losses some may incur. It also describes key concepts like insurable risk, indemnification, and the business model of insurers which involves underwriting policies and investing premiums to pay claims. The document outlines different types of insurance and principles like affordability and calculability of risk that make something insurable. It also discusses effects of insurance on risk taking and society.
Premium financing allows an irrevocable life insurance trust (ILIT) to take out loans to pay life insurance premiums on the insured's life. This reduces gift tax costs compared to paying premiums outright. The life insurance policy serves as collateral, and additional assets may also be pledged. At the insured's death, the loan is repaid from death benefits. Exit strategies like GRATs and IDITs can provide funds to repay the loan and maintain the desired death benefit amount. Premium financing provides estate tax liquidity but involves risks like policy lapse if not properly planned and executed.
- Insurance companies provide insurance policies to policyholders in exchange for premium payments. The policies are legally binding contracts where the insurance company agrees to pay specified sums if future events occur, such as death or an accident.
- Insurance companies accept the risk from policyholders in exchange for premiums. They determine which applications to accept and how much to charge through underwriting. Premiums provide stable revenue while payments to policyholders are the major expense.
- There are various types of insurance like life, health, property & casualty, liability, and investment-oriented products. Insurance companies combine these types of insurance in different ways and are regulated at the state level in the US.
This article takes the viewer through the Accounting Aspects related to Insurance under IFRS and the Income Tax requirements in India. It also touches upon the Direct Tax Code and its impact on Insurance based deductions.
The important functions of a financial manager include:
1. Providing capital for business operations through programs and maintaining relationships with investors.
2. Managing short-term financing from banks and collections from customers.
3. Planning and controlling business operations through reporting and evaluating performance.
Debentures are debt instruments issued by companies as evidence of debt. Common types include secured/unsecured, convertible/non-convertible, and redeemable/perpetual debentures. Preference shares are hybrid instruments with characteristics of both debt and equity.
The balance sheet shows a company's assets, liabilities, and shareholders' equity on a particular date. Ratio analysis evaluates the financial health and performance of
Unit Linked Insurance Policies (ULIPs) are life insurance policies that provide both risk coverage and investment. Most ULIPs offer a range of investment funds to suit different risk profiles and time horizons. Returns are not guaranteed as the investment risk is borne by the policyholder. Charges include premium allocation charges, mortality charges, fund management fees, and surrender charges. The document provides answers to frequently asked questions about ULIPs, such as what is a unit fund, benefits payable, consequences of discontinuing premiums, and fund performance reporting.
This document discusses different methods of financial risk control, including internal and external risk financing. Internal risk financing involves funding losses from regular earnings, creating a fund to cover large losses, or self-insuring. External risk financing primarily uses insurance. The document outlines different types of insurance policies, including liability insurance, employer's liability, professional indemnity, products liability, and personal accident insurance. It provides details on how each policy covers losses and exceptions to the coverage.
Strategic Considerations in Financial ReinsuranceAmit Ayer
As reinsurers seek alternative models outside of traditional life reinsurance, reinsurers are placing a renewed focus on financial reinsurance, in particular as asset-intensive reinsurance has been in general curtailed by the low rate environment. Attached are materials focusing on the strategic implications of financial reinsurance, focusing on in-force products.
The document provides information about the characters and plotlines in Geoffrey Chaucer's Canterbury Tales. It describes each of the pilgrims that are part of the story, including their occupations, physical descriptions, and the tales they tell. It also summarizes the overall story structure, explaining that the pilgrims are traveling to Canterbury to visit the shrine of Saint Thomas Becket and will each tell tales during the journey. Key details about the Wife of Bath, the Pardoner, and Chaucer's intentions in writing the story are also summarized.
Ajay Bijli founded PVR Cinemas in India in 1995, bringing the first multiplex cinema concept to the country. PVR introduced innovations like online and mobile ticketing, visual seat selection maps, and luxury food and beverage service within theaters. The company targeted both metro and non-metro audiences across India with multiple brands. PVR saw strong financial growth over its first decade and received several awards for its success and leadership in the cinema industry. While facing increasing competition from chains like INOX and Adlabs, PVR plans to expand further through collaborations, new technologies, and potentially producing its own films. A SWOT analysis finds PVR's strengths in its film distribution business and first mover advantage
The document discusses the benefits of exercise for mental health. Regular physical activity can help reduce anxiety and depression and improve mood and cognitive function. Exercise causes chemical changes in the brain that may help protect against mental illness and improve symptoms.
ANT2- Atelier 2: Communication stratégique efficace et planifiéeDogstudio pour le BEP
Atelier organisé dans le cadre du parcours ANT 2, initiative du Bep, Bureau Economique de la Province de Namur et animé le 30 novembre à Namur, par Gerald Stein, Directeur de l'agence Léon Travel Tourisme.
Sonia Allard de NVI et Christine Dicaire de Club med Canada ont donné une conférence sur le virage web adopté par Club Med lors de la conférence Infopresse sur le tourisme.
Qu'est-ce qu'un schéma d'aménagement et de développementVille de Laval
Qu’est-ce qu’un schéma d’aménagement et de développement? À quoi ça sert? Que contient le schéma d’aménagement d’une ville? Que doit-il respecter? Découvrez le lexique développé par la Ville de Laval pour vous expliquer ce document-clé dans le développement d’une ville. Informez-vous et participez à la démarche : www.RepensonsLaval.ca
This document analyzes the implications of lengthened workers' compensation liability tails for self-insurers in three sentences:
Lengthened liability tails increase the financial risks and rewards of self-insurance by extending the period over which cash outflows are deferred. Longer tails also increase profit and loss volatility for self-insurers and affect how expenses are reported in financial statements. The document models costs of self-insurance under shorter and longer tail scenarios to explore these implications.
This M Intelligence piece will explore the product mechanics and design considerations of Whole Life (WL) insurance. There are two general categories of WL...
November 2017 Reprint - Actively Manage Your Risk with a Captive Insurance Co...CBIZ, Inc.
Captive insurance companies allow companies to insure and manage their own risks. They provide benefits for commercial real estate companies who deal with risks like workers compensation, general liability, floods, and loss of rents. Captive insurance structures include pure/single parent captives, group captives, and micro-captives. Micro-captives in particular provide tax benefits and flexibility for smaller companies. While captives provide advantages like tailored coverage and tax benefits, they also involve additional costs and regulatory requirements. Commercial real estate companies should evaluate whether a captive insurance company fits with their risk management strategy.
Numerous financial instruments and products are used in financial planning. Life insurance is an example of both because it assists individuals accomplish financial goals via a financial mechanism that is legally structured differently from other financial planning products such as 401(k)s and individual retirement accounts.
- Small and large businesses are increasingly forming "profit center captives" as a way to profit from risk by selling insurance products like warranties to their customers.
- Large companies like Verizon and Walmart have been successfully selling insurance products to customers for years, realizing new profits. These small insurance programs within larger companies are called "profit center captives".
- Profit center captives allow companies to take on third-party risks from customers or other external parties, converting those premiums paid into new revenue streams and profits for the company. They provide benefits like strengthening customer relationships and diversifying revenue.
Accounting services overview of insurance contract under ifrsAhmedTalaat127
The majority of accounting services in Dubai and UAE ignore insurance accounting because they are not in the insurance business. Now that there will be a new accounting standard related to insurance contracts, chartered accountants should check to make sure they aren’t erroneously issuing them.
This document discusses pension buy-in arrangements, which are similar to annuities but do not transfer responsibility for pension obligations from the employer to an insurer. Under a buy-in, the pension plan purchases a contract from an insurer to generate returns to cover future benefit payments, but the plan remains responsible for payments. The document explores accounting implications, noting buy-ins do not qualify for settlement accounting and should be recorded as a plan asset at fair value.
P&C Market Outlook: 2020 Insurance Planning Insights CBIZ, Inc.
After approximately 20 years of a soft, buyer-friendly insurance market, we are facing a hardening market – one that is less friendly to insurance buyers. This article discusses trends to be aware of, rate forecasts, factors you can manage that affect your rates and tips for insurance buyers.
Insurance law is the practice of law surrounding insurance, including insurance policies and claims. It can be broadly broken into three categories - regulation of the business of insurance; regulation of the content of insurance policies, especially with regard to consumer policies; and regulation of claim handling.
This document provides an overview of various types of commercial insurance policies and concepts, including:
- Commercial Package Policies that bundle various coverage parts like general liability, property, and business income.
- The distinction between first-party insurance that pays the policyholder, and third-party insurance that pays others.
- The importance of reading the policy (RTFP) to understand what is and isn't covered, including any sub-limits or exclusions.
- Differences between excess policies, umbrellas, towers of coverage, and how policies may follow-form or have standalone terms.
- Concepts of self-insurance, large deductible plans, captives, reinsurance, fronting
Taking a closer look at what your company needs to know about moving from a fully-insured to a self-funded health benefits environment. Originally presented by Greg Bass, Senior Consultant/Benefits Division Manager for The Starr Group, this presentation shares the "secret formula" for health insurance programs that successfully work WITH ObamaCare!
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1. International Insurance Regulation - United States
Insurance Basics: Insurers assume and manage risk in return for a
premium. The premium for each policy, or contract, is calculated
based in part on historical data aggregated from many similar policies
and is paid in advance of the delivery of the service. The actual cost of
each policy to the insurer is not known until the end of the policy
period (or for some insurance products long after the end of the policy
period), when the cost of claims can be calculated with finality.
The insurance industry is divided into two major segments:
property/casualty, also known as general insurance or non-life,
particularly outside the United States, and life. Property/casualty
insurers sell home, auto and commercial coverages; life insurers sell
life, long-term care and disability insurance and annuities. In the
United States, both types of insurers submit financial statements to
regulators using SAP but there are some significant differences
between the accounting practices of property/ casualty and life
insurers due to the nature of their products.
Insurance is regulated by the states whose main objective is to
monitor and maintain the solvency of the companies they regulate.
States also oversee rates, particularly for property/casualty insurers,
to ensure they are adequate, not excessive and not unfairly
discriminatory. To support these goals, all insurance companies are
required to file annual financial statements with state regulators using
an accounting system established by the National Association of
Insurance Commissioners known as statutory accounting principles, or
SAP. SAP generally recognizes liabilities sooner and at a higher value
than GAAP and assets later and at a lower value.
Differences Between Property/Casualty and Life Insurance
Contracts: Some differences between property/casualty insurance
contracts have accounting implications. These include:
Contract duration: Property/casualty insurance contracts are usually
short-term, six-months to a year. As a result, the final cost of most
property/casualty contracts will be known within a year or so after the
policy term begins, except for some types of liability contracts. By
contrast, life, disability and long-term care insurance and annuity
contracts are typically in force for decades.
2. Variability of claims outcomes per year: The range of potential
outcomes with property/casualty insurance contracts can vary widely,
depending on whether claims are made under the policy, and if so,
how much the ultimate settlement (claims payments and claims
adjustments expenses) costs.
In some years, natural disasters such as hurricanes and man-made
disasters such as terrorist attacks can produce huge numbers of
claims. By contrast, claims against life insurance and annuity contracts
are typically amounts stated in the contracts and are therefore more
predictable. There are very few instances of catastrophic losses in the
life insurance industry comparable to those in the property/casualty
insurance industry.
Financial Statements: An insurance company's annual financial
statement is a lengthy and detailed document that shows all aspects of
its business. The initial section includes a balance sheet, an income
statement and a section known as the Capital and Surplus Account,
which sets out the major components of policyholders' surplus and
changes in the account during the year. As with GAAP accounting, the
balance sheet presents a picture of a company's financial position at
one moment in time—its assets and its liabilities–-and the income
statement provides a record of the company's operating results from
the previous year.
An insurance company's policyholders' surplus—its assets minus its
liabilities—serves as the company's financial cushion against
catastrophic losses and as its working capital for expansion. Regulators
require insurers to have sufficient surplus to support the policies they
issue. The greater the risks assumed, the higher the amount of
policyholders' surplus required.
Asset Valuation: Property/casualty companies need to be able to pay
predictable claims promptly and also to raise cash quickly to pay for a
large number of claims in the event of a hurricane or other disaster.
Therefore most of their assets are high quality income paying
government and corporate bonds that are generally held to maturity.
Under SAP, they are valued at amortized cost rather than their current
market cost. This produces a relatively stable bond asset value from
year to year (and reflects the expected use of the asset.)
3. However, when prevailing interest rates are higher than bonds' coupon
rates, amortized cost overstates asset value, producing a higher value
than one based on the market. (Under the amortized cost method, the
difference between the cost of a bond at the date of purchase and its
face value at maturity is accounted for on the balance sheet by
gradually changing the bond's value.
This entails increasing its value from the purchase price when the bond
was bought at a discount and decreasing it when the bond was bought
at a premium.) Under GAAP, bonds may be valued at market price or
recorded at amortized cost, depending on whether the insurer plans to
hold them to maturity (amortized cost) or make them available for
sale or active trading (market value).
The second largest asset category for property/casualty companies,
preferred and common stocks, are valued at market price. Life
insurance companies generally hold a small percentage of their assets
in preferred or common stock.
Some assets are "nonadmitted" under SAP and therefore assigned a
zero value but are included under GAAP. Examples are premiums
overdue by 90 days and office furniture. Nonadmitted assets and limits
on categories of investments may be reconsidered at some point in
time in light of the European Union's drive toward a single market for
insurance which includes a new regulatory framework for insurance
company solvency known as Solvency II.
While the frameworks for solvency regulation and accounting are not
the same, the two are intertwined. Regulators look at balance sheets
in evaluating solvency and balance sheets are the product of
accounting. Solvency II envisions the removal of rules on nonadmitted
assets. In their place will be a set of guiding principles based on the
concept of a "prudent person."
Real estate and mortgages make up a small fraction of
property/casualty company's assets because they are relatively illiquid.
Life insurance companies whose liabilities are longer term
commitments have a greater portion of their investments in
commercial mortgages.
The last major asset category is reinsurance recoverables. These are
amounts due from the company's reinsurers on claims that have been
paid. (Reinsurers are insurance companies that insure other insurance
4. companies, thus sharing the risk of loss.) Amounts due from
reinsurance companies are categorized according to whether they are
overdue and, if so, by how many days. Those recoverables deemed
uncollectible are reported as a surplus penalty on the liability side of
the balance sheet, thus reducing surplus.
Liabilities and Reserves: Liabilities, or claims against assets, are
divided into three components: reserves for obligations to
policyholders, claims by other creditors and policyholders' surplus.
Reserves for an insurer's obligations to its policyholders are by far the
largest liability. Property/casualty have three types of reserve funds:
unearned premium reserves, or pre-claims liability, loss and loss
adjustment reserves, or post claims liability, and other.
Unearned premiums are the portion of the premium that corresponds
to the unexpired part of the policy period. Premiums have not been
fully "earned" by the insurance company until the policy expires. In
theory, the unearned premium reserve represents the amount that the
company would owe all its policyholders for coverage not yet provided
if one day the company suddenly went out of business. If a policy is
canceled before it expires, part of the original premium payment must
be returned to the policyholder.
Loss reserves are obligations that an insurance company has incurred
due to claims filed under the policies it has issued. Loss adjustment
reserves are funds set aside to pay for claims adjusters, legal
assistance, investigators and other expenses associated with settling
claims. Property/casualty insurers only set up reserves for accidents
and other events that have happened.
Some claims, like fire losses, are easily estimated and quickly settled.
But others, such as product liability and some workers compensation
claims, may be settled long after the policy has expired. The most
difficult to assess are loss reserves for events that have already
happened but have not been reported to the insurance company,
known as incurred but not reported (IBNR). Examples of IBNR losses
are cases where workers inhaled asbestos fibers but did not file a
claim until their illness was diagnosed 20 or 30 years later.
Actuarial estimates of the amounts that will be paid on outstanding
claims must be made so that profit on the business can be calculated.
Insurers estimate claims costs, including IBNR claims, based on their
experience. Reserves are adjusted, with a corresponding impact on
earnings, in subsequent years as each case develops and more details
5. become known.
Revenues, Expenses and Profits: Profits arise from insurance
company operations (underwriting results) and investment results but
the latter are generally a small part of property/casualty insurance
company profits.
Policyholder premiums are an insurer's main revenue source. Under
SAP, when a policy is issued, the pre-claim liability or unearned
premium is equal to the written premium. (Written premiums are the
premiums charged for coverage under policies written regardless of
whether they have been collected or "earned.")
Premiums are treated as deferred revenues and increase the unearned
premium reserve. Premiums are earned on a pro-rata basis as
coverage is provided over the policy period.
Under GAAP, policy acquisition expenses, such as agent commissions,
are deferred on a pro-rata basis in line with GAAP's matching principle.
This principle states that in determining income for a given period,
expenses must be matched to revenues. As a result, under GAAP (and
assuming losses and other expenses are contemplated as experienced
in the rate applied to calculate the premium) profit is generated
steadily throughout the duration of the contract. In contrast, under
SAP, expenses and revenues are deliberately mismatched. Expenses
associated with the acquisition of the policy are charged in full as soon
as the policy is issued. Consequently, the policy produces a smaller
profit initially but one that grows throughout the policy period.
SAP mismatches the timing of revenues and acquisition expenses to
enhance the likelihood of the insurer's solvency. By recognizing
acquisition expenses before the income generated by them is earned,
SAP forces an insurance company to finance those expenses from its
policyholder surplus. This appears to reduce the surplus available to
pay unexpected claims. In effect, this accounting treatment requires
an insurer to have a larger safety margin to be able to fulfill its
obligation to policyholders.
The IASB Proposal for International Insurance Accounting
Standards: IASB's aim in creating new accounting standards for the
insurance industry is to facilitate the understanding of insurers'
financial statements. Until recently, insurance contracts had been
excluded from the scope of international financial reporting standards,
in part because accounting practices for insurance often differ
substantially from those in other sectors, both banking and other
6. financial services and nonfinancial businesses, and from country to
country.
The IASB plan divided the insurance project into two phases so that
some basic improvements in insurance contracts could be
implemented quickly. The first phase to enhance transparency and
comparability was completed in 2004 with the publication of
International Financial Reporting Standards 4, Insurance Contracts.
Although these standards were adopted by the European Union in
2005, they have yet to be agreed to by FASB. The second phase is
now underway with opportunities for comments as the work
progresses.
Insurers' Concerns: These concerns center on the IASB "exit value"
approach to valuing liabilities. IASB defines exit value as "the amount
the insurer would expect to pay at the reporting date to transfer its
remaining contractual rights and obligations immediately to another
entity," and suggests that insurers measure their current liabilities
using three "building blocks," which together constitute the exit value
approach. The three building blocks represent current estimates of
liabilities, including loss reserves and unearned premiums reserves; a
discount for the time value of money, meaning that the company can
earn investment income on the reserves until they have to be paid out
at some time in the future; and a "risk margin," which takes into
account the uncertainty of the future outcome of the business and the
possibility that the seller may need to provide assistance to the buyer.
Exit value does not reflect reality: The exit value concept is highly
theoretical. It is based on the notion that there is a secondary market
and a reliable price for insurance policies, as there are for securities of
various kinds, and that, therefore, a profit or loss can be calculated
immediately after the policy has been issued. However, in reality, such
a transfer of liabilities would virtually never occur, particularly in the
case of property/casualty insurance contracts.
Without a robust secondary market, the only way to value liabilities is
to create a model to represent such a market. This would entail
modeling cash flow patterns for all potential scenarios, establishing
discount factors to calculate present value and setting risk margins to
compensate for the uncertainty of results as envisaged by the IASB
model. With inputs and assumptions that are not independently
verifiable, the IASB model is likely to produce outcomes that are
different from the reality of the insurance transaction.
This is particularly true for insurers that cover rare (low frequency) but
potentially devastating (high severity) risks, where the range of
7. potential outcomes is enormous and difficult to predict and where the
timing of cash flows depends on many variables including legal
proceedings which can be dragged out for years. The subjectivity of
the estimates calculated in this manner and the possibility of errors is
more likely to impair rather than enhance the understandability and
comparability of financial statements. As recent experience mortgage-
backed securities including subprime loans shows, models can be
wrong.
The volatility and complexity of the exit value approach could
lessen investors' interest in some insurance companies:
Property/casualty insurers' financial results naturally vary substantially
from one year to the next, depending on the number and severity of
natural and man-made disasters and the level and outcome of
litigation, among other things. Many different factors could add extra
volatility, including changes in the interest rates selected for
discounting and risk margins. Artificial volatility could also come from
all the various assumptions insurers are forced to make about how
their business will develop over time. Some insurers will be forced to
add voluminous notes to their financial statements to explain their
assumptions and inputs to their model, dampening the enthusiasm of
some potential investors who will be put off by the difficulty of
weighing the import of each note. As a result, some companies fear it
will be harder to raise money. If they have to pay more to entice
investors, their cost of capital will increase which in turn will lead to
higher insurance prices.
The exit value approach and the need to satisfy many
constituencies may force companies to reveal too many details
of the their business: Companies with a complex business model
that requires them to reveal and explain proprietary information may
find that competitors benefit from this information or that is
misunderstood by readers of their financial statements.
"Field Test" needed: Insurers note that the IASB itself was split in
its approval of the exit value concept, voting 7-6 to accept it with one
abstention. Some insurers suggest that the approach be given a dry
run to test its acceptability before it is formally adopted. A field test,
where companies actually filed financial statements using the exit
value approach, would determine whether the new approach creates
unintended or unrepresentative results, whether they can be reliably
audited, whether the approach is expensive or unreasonably difficult to
implement and whether there are ambiguities that might produce
9. INTERNATIONAL TERRORISM INSURANCE POLICY
Terrorism insurance is insurance purchased by property owners to
cover their potential losses and liabilities that might occur due to
terrorist activities.
It is considered to be a difficult product for insurance companies, as
the odds of terrorist attacks are very difficult to predict and the
potential liability enormous. For example the September 11, 2001
attacks resulted in an estimated $31.7 billion loss. This combination of
uncertainty and potentially huge losses makes the setting of premiums
a difficult matter. Most insurance companies therefore exclude
terrorism from coverage in Casualty and Property insurance, or else
require endorsements to provide coverage.
On December 26, 2007, the President of the United States signed into
law the Terrorism Risk Insurance Program Reauthorization Act of 2007
which extends the Terrorism Risk Insurance Act (TRIA) through
December 31, 2014. The law extends the temporary federal Program
that provides for a transparent system of shared public and private
compensation for insured losses resulting from acts of terrorism.
The United States insurance market offers coverage to the majority of
large companies which ask for it in their polices. The price of the policy
depends on where the clients are residing and how much limit they
buy.
Industry Needs
Concentration of risk is another factor in determining availability for
terrorism insurance. Due to the concentrated losses of the World Trade
Center, carriers were hit with large losses in one centralized location.
Insurers seek to spread the coverage over a wider geographic area
than as with other aggregate perils, such as flood.
Modeling the Risks
Insurance companies are using an approach that is similar to that used
with natural catastrophe risks. A Swiss report suggested that in this
case where demand is greater than the supply for terrorism coverage
that a short-term solution is possible: a mix of government and private
resource to make easy the transition. In this situation, the government
10. would serve two functions: to establish rules to overcome the capacity
shortage and to be the insurer of last resort.
Crisis Management
Crisis management planning can save large amounts money in the
long run. According to experts, for every dollar spent on developing
crisis management plan ahead of time, $7 is saved in losses when a
disaster comes.
Netherlands
Insurance payments related to terrorism are restricted to a billion euro
per year for all insurance companies together. This regards property
insurance, but also life insurance, medical insurance, etc.
Iraq
The New York Times reports that in Baghdad personal terrorism
insurance is available. One company offers such insurance for $90,
and if the customer is a victim of terrorism in the next year, it pays
the heirs $3,500.
UK
In the UK, following the Baltic Exchange bomb in 1992, all UK insurers
stopped including terrorism cover on their commercial insurance
policies with effect from 1st January 1993 (home insurance policies
were unaffected). As a consequence, the government and insurance
industry established Pool Re. Primarily funded by premiums paid by
policyholders, the government guarantees the fund although any such
support must be repaid from future premiums. To date no government
support has been necessary.
Countries With Long-Term Terrorism Insurance Programmes
According to the policy agenda of The Real Estate Roundtable, the
following countries are the only ones in the world with long-term
terrorism insurance.
Australia
Austria
Finland
France
11. Germany
Israel
Namibia
Netherlands
Russia
South Africa
Spain
Switzerland
Turkey
United Kingdom
Insurance Credit Score:
An insurance credit score is a number that is determined by looking at
certain aspects of an individual's credit history. This number is
provided to insurance companies by a credit evaluation service.
Insurance companies then use this number as one of many factors
that determine the rates a policyholder is charged. Statistics have
shown that insurance scores are an accurate tool to help predict the
amount of claims that a policyholder will file.
RESIDUAL MARKET: The residual market consists of facilities to
provide coverage for consumers or businesses that cannot purchase
insurance in the regular market. Some examples of residual market
facilities are Assigned Risk Plans, Joint Underwriting Agreements, and
FAIR plans.