Tax Deductibility of Premiums Paid to Captive Insurers: A Risk Reduction Appr...Michael-Paul James
Presentation by Michael-Paul James on The Tax Deductibility of
Premiums Paid to Captive Insurers: A Risk Reduction Approach
Li-Ming Han, and Gene C. Lai
Advanced Markets Insight: Life Insurance Basics—Life Insurance Pricing and Po...M Financial Group
The pricing of life insurance policies is complex and dynamic. There are four factors that primarily drive pricing and policy performance: mortality, investment earnings, expenses and taxes, and persistency. The impact of the varying pricing factors on policy performance will vary in importance depending on the type of policy design. Each pricing factor is based on current experience, usually from the insurer itself but sometimes complemented by data from actuarial consulting firms, public sources, or reinsurers.
The document discusses the total cost of risk (TCOR) and how captives are involved in calculating TCOR. It summarizes a panel discussion on TCOR that explored whether captives properly account for premiums and losses in their TCOR calculations. The panel included a risk manager, actuary, and survey representative who discussed different approaches to calculating TCOR and whether respondents track it. Most audience members did not track TCOR. The document then provides background on TCOR components and discusses three methods for calculating the loss component of TCOR. It also gives an example of how one company calculates and reports TCOR to management, showing captives can significantly impact TCOR calculations.
GlaxoSmithKline plc is a global healthcare company that develops, manufactures, and markets pharmaceuticals and consumer healthcare products. The document provides an overview of GSK, including its business operations, financial performance over time, analyst recommendations and valuations using different methods. The discounted dividend model valuation of £24.84 per share is considered the most appropriate given the growth rates used are lower than the cost of capital rate and closest to the current market price.
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.
The use of EU onshore Protected Cells as a capital efficient, cost-effective, flexible and secure alternative to owning a standalone insurer or captive. Presentation by Ian-Edward Stafrace to the UK IRM Global Risk Management Professional Development Forum 2011
This document discusses the interest rate risk of municipal bonds and opportunities for tax management. It begins by explaining how rising interest rates will negatively impact municipal bond prices more than expected due to their tax treatment. It then introduces an after-tax valuation approach that considers capital gains tax rates to more accurately measure interest rate sensitivity and duration. This approach reveals that discount bonds and those with lower coupons have higher interest rate risk than standard analyses show. The document concludes by discussing how strategic selling can enhance after-tax returns by harvesting tax losses and realizing capital gains at optimal times.
Tax Deductibility of Premiums Paid to Captive Insurers: A Risk Reduction Appr...Michael-Paul James
Presentation by Michael-Paul James on The Tax Deductibility of
Premiums Paid to Captive Insurers: A Risk Reduction Approach
Li-Ming Han, and Gene C. Lai
Advanced Markets Insight: Life Insurance Basics—Life Insurance Pricing and Po...M Financial Group
The pricing of life insurance policies is complex and dynamic. There are four factors that primarily drive pricing and policy performance: mortality, investment earnings, expenses and taxes, and persistency. The impact of the varying pricing factors on policy performance will vary in importance depending on the type of policy design. Each pricing factor is based on current experience, usually from the insurer itself but sometimes complemented by data from actuarial consulting firms, public sources, or reinsurers.
The document discusses the total cost of risk (TCOR) and how captives are involved in calculating TCOR. It summarizes a panel discussion on TCOR that explored whether captives properly account for premiums and losses in their TCOR calculations. The panel included a risk manager, actuary, and survey representative who discussed different approaches to calculating TCOR and whether respondents track it. Most audience members did not track TCOR. The document then provides background on TCOR components and discusses three methods for calculating the loss component of TCOR. It also gives an example of how one company calculates and reports TCOR to management, showing captives can significantly impact TCOR calculations.
GlaxoSmithKline plc is a global healthcare company that develops, manufactures, and markets pharmaceuticals and consumer healthcare products. The document provides an overview of GSK, including its business operations, financial performance over time, analyst recommendations and valuations using different methods. The discounted dividend model valuation of £24.84 per share is considered the most appropriate given the growth rates used are lower than the cost of capital rate and closest to the current market price.
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.
The use of EU onshore Protected Cells as a capital efficient, cost-effective, flexible and secure alternative to owning a standalone insurer or captive. Presentation by Ian-Edward Stafrace to the UK IRM Global Risk Management Professional Development Forum 2011
This document discusses the interest rate risk of municipal bonds and opportunities for tax management. It begins by explaining how rising interest rates will negatively impact municipal bond prices more than expected due to their tax treatment. It then introduces an after-tax valuation approach that considers capital gains tax rates to more accurately measure interest rate sensitivity and duration. This approach reveals that discount bonds and those with lower coupons have higher interest rate risk than standard analyses show. The document concludes by discussing how strategic selling can enhance after-tax returns by harvesting tax losses and realizing capital gains at optimal times.
Hen 368 lecture 6 health care systems and institutionsGale Pooley
This document discusses health care systems and institutions. It explains that health care systems must make choices about production, consumption, and distribution of health care services. Key questions are who decides, who finances, how services are reimbursed, and how care is produced. Common systems involve insurers who collect premiums and pay claims, with consumers and providers directly linked through fees. Systems can be centralized with government choice or decentralized with many choices. Private systems rely on voluntary premiums while government systems use mandatory taxes.
This document provides information about homeowners' insurance in Florida. It discusses the various types of coverage homeowners' insurance provides, including coverage for the structure of the home, other structures like sheds, personal property, additional living expenses, personal liability, and medical payments. It also explains different types of homeowners' insurance packages, condominium insurance, mobile home insurance, and factors to consider when purchasing a policy.
This document summarizes capital structure decisions and theories. It discusses how debt can impact a firm's weighted average cost of capital (WACC) and free cash flow (FCF). The key effects are:
- Debt can lower WACC by reducing the tax burden but increase it by raising financial risk.
- Debt can boost or reduce FCF by lowering costs through interest tax deductions but increasing bankruptcy risk.
- Capital structure theories like MM and trade-off theory examine the optimal debt-equity mix that balances these costs and benefits. Signaling theory notes managers' private information impacts financing choices.
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.
Tax Exempt Insurance for Business OwnersStephen Hale
This document summarizes the features and benefits of participating life insurance for business owners, including:
- Stable performance and low risk due to professional management of a diversified portfolio.
- Tax-advantaged growth of cash value which is not reduced by annual taxes, unlike other investments.
- Potential to bypass estate taxes and provide immediate enhancement of estate value through life insurance death benefits.
- Personal policies can protect policy values from creditors, providing benefits are paid directly to beneficiaries.
It provides examples demonstrating higher long-term returns compared to bonds, as well as notes on assumptions and limitations of the information presented.
EMCI held investor meetings in March and April 2017 to discuss the company's business lines and strategies. EMCI operates in both property and casualty insurance and reinsurance segments. It aims to increase profitability in commercial auto insurance through initiatives to improve underwriting results. EMCI also focuses on innovation, such as through partnerships with insurtech startups, to enhance policyholder services and loss control programs.
The document discusses operating a bakery business owned by Samantha Johnson as either a sole proprietorship or a C corporation. Currently as a sole proprietorship, the bakery earns $100,000 in annual profit which is taxed at Samantha's personal 35% rate, plus $5,000 in stock dividends. If operated as a C corporation, the business profits would be taxed first at the corporate level and then again if distributed as dividends to Samantha. The document analyzes different business structures and their tax implications to determine if incorporating would provide an annual tax savings for Samantha.
This document classifies and defines different types of risk:
1. Systematic risk includes market risk, interest rate risk, and purchasing power risk which stem from overall market forces outside a company's control.
2. Unsystematic risk is specific to an individual company and can result from business risks like poor management or technological changes, or financial risks from using debt.
3. Risk is associated with the variability and uncertainty of investment returns. Expected return considers the probability weighted average returns from all possible outcomes, while risk is measured by the variance or standard deviation of returns. Both risk and expected return must be examined for investment decisions.
Putting a Price On Terrorism - Tammi Brown and Doug Butler, of MIJS, reflect on terrorism as an insurable risk and how captive assignations for premiums should be organized.
The document discusses abusive tax shelters involving captive insurance companies that remain on the IRS's annual "Dirty Dozen" list of tax scams. It describes how some promoters set up illegitimate micro captive insurance companies for businesses to avoid taxes, by having businesses pay exorbitant "insurance premiums" that lack proper underwriting to the captive insurers they own, and take improper tax deductions. However, the IRS has not added micro captives directly to its listed transaction list, as they can be legitimate if set up and operated properly for valid insurance purposes.
EMC Insurance Group Inc. provides property and casualty insurance and reinsurance. It has a diversified book of business across commercial and personal lines. The company benefits from its pooling agreement which spreads risk across a large capital base and geographic regions. It focuses on local market presence through regional branches and guided autonomy. This allows the company to strengthen agency relationships and target products and pricing to specific territories.
This document discusses key concepts related to life insurance premiums, including:
- Premium components include interest, expenses, mortality, benefits, bonus loading, taxation, and inflation.
- There are different types of premiums such as risk premium, net premium, and office premium. Premium calculation is complex and involves actuarial and statistical principles.
- Insurers establish a life fund to hold all income from life insurance policies to exclusively meet liabilities and claims expenses.
- Insurers conduct annual actuarial valuations to ensure assumptions about mortality, interest, and expenses are valid and the business remains financially sound. Bonus may be distributed if valuations show surplus funds.
This document discusses the differences between fully insured and self-funded health insurance options for employers. It introduces Premium Analysis, Inc., a company that provides risk analysis tools to help employers choose between funding options. Monte Carlo simulation software can analyze different scenarios and predict that self-funding has an 84.5% probability of equaling or improving costs compared to fully insured plans, by quantifying risks. The company's fee structure and compensation model are also outlined.
Multiple factors make municipal bonds an attractive investment option. They offer tax-exempt income, have low default rates, and provide tax advantages given recent tax law changes. The Pioneer AMT-Free Municipal Fund is an actively managed, investment-grade municipal bond fund that is nationally diversified across important economic sectors and has a history of strong long-term performance relative to its peers. It aims to provide tax-exempt income through a disciplined strategy of buying and managing municipal bonds while avoiding those subject to the Alternative Minimum Tax.
This document discusses volatility controlled investing strategies for defined benefit and defined contribution pension plans. It begins with an overview of the challenges pension plans face in generating returns while managing downside risk. It then provides examples of how volatility control strategies work by varying equity market exposure in response to changing volatility levels. Key benefits of volatility control for pension plans include downside protection, lower costs compared to other protection strategies, and better risk-adjusted returns than passive equity exposure. The document also addresses common questions about volatility control and provides references for further reading.
Selective Insurance Group reported financial results for the first quarter of 2009. Net loss was $0.25 per share compared to net income of $0.38 per share in 2008 due to lower investment income and realized losses. Operating income was $0.05 per share. While insurance operations performed well, investment results were challenged by losses from alternative investments and impairments. The company also announced a quarterly dividend of $0.13 per share.
Harry Long Fremont Management Presentationharrylong
The document summarizes a presentation made to Fremont management about issues with the company's personal lines business. It notes a lack of underwriting discipline as evidenced by growing premiums despite underwriting losses. It criticizes the culture of denial among top executives and lack of a clear risk management policy. Specific problems in the political, economic and regulatory environment that contribute to underwriting difficulties are identified. Solutions proposed include ranking agencies by loss performance, stopping the use of credit scoring, accepting the difficult political situation, and expanding operations outside of Michigan.
This document discusses price optimization in insurance pricing and the controversy surrounding its use. It begins by explaining that several states have banned or limited price optimization, which considers non-risk factors like willingness to pay higher prices. The document then discusses what price optimization is, how it builds on traditional risk-based rating, and how it models demand and optimal pricing. While it can allow companies to increase profits, some see it as unfairly discriminating against equally risky policyholders. The future of price optimization and the role of CPCUs in understanding its impact are also examined.
- The document discusses a study on the effects of bank-insurance mergers and acquisitions (M&As) on shareholder value.
- Preliminary results from the event study analysis show that M&As in the sample generated positive abnormal returns overall, indicating positive wealth effects. Specifically, bank bidders saw significantly positive returns around the announcement dates.
- However, insurance bidders' returns were insignificant, conflicting with some prior studies that found both types of bidders experienced wealth changes. The results so far are limited but provide initial evidence on the shareholder impacts of bancassurance M&As.
The document discusses using analytics to help companies determine appropriate insurance coverage levels when they have little loss history to rely on. It describes quantifying a company's exposure by estimating the likelihood and potential costs of large losses based on industry data. The document provides an example of how a company could use industry loss data and distributions to analyze whether $75 million in coverage would adequately cover its risks 80-90-99% of the time. It emphasizes that analytics can provide credible support for insurance and risk transfer discussions.
Quantifies in dollars, the cyber risk for an enterprise, based upon historical industry data and rigorous statistical models.
Risk is calculated for custodial data (PII, PFI, CHD & PHI), based upon a peer company of the same size and industry, with the same value at risk.
Hen 368 lecture 6 health care systems and institutionsGale Pooley
This document discusses health care systems and institutions. It explains that health care systems must make choices about production, consumption, and distribution of health care services. Key questions are who decides, who finances, how services are reimbursed, and how care is produced. Common systems involve insurers who collect premiums and pay claims, with consumers and providers directly linked through fees. Systems can be centralized with government choice or decentralized with many choices. Private systems rely on voluntary premiums while government systems use mandatory taxes.
This document provides information about homeowners' insurance in Florida. It discusses the various types of coverage homeowners' insurance provides, including coverage for the structure of the home, other structures like sheds, personal property, additional living expenses, personal liability, and medical payments. It also explains different types of homeowners' insurance packages, condominium insurance, mobile home insurance, and factors to consider when purchasing a policy.
This document summarizes capital structure decisions and theories. It discusses how debt can impact a firm's weighted average cost of capital (WACC) and free cash flow (FCF). The key effects are:
- Debt can lower WACC by reducing the tax burden but increase it by raising financial risk.
- Debt can boost or reduce FCF by lowering costs through interest tax deductions but increasing bankruptcy risk.
- Capital structure theories like MM and trade-off theory examine the optimal debt-equity mix that balances these costs and benefits. Signaling theory notes managers' private information impacts financing choices.
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.
Tax Exempt Insurance for Business OwnersStephen Hale
This document summarizes the features and benefits of participating life insurance for business owners, including:
- Stable performance and low risk due to professional management of a diversified portfolio.
- Tax-advantaged growth of cash value which is not reduced by annual taxes, unlike other investments.
- Potential to bypass estate taxes and provide immediate enhancement of estate value through life insurance death benefits.
- Personal policies can protect policy values from creditors, providing benefits are paid directly to beneficiaries.
It provides examples demonstrating higher long-term returns compared to bonds, as well as notes on assumptions and limitations of the information presented.
EMCI held investor meetings in March and April 2017 to discuss the company's business lines and strategies. EMCI operates in both property and casualty insurance and reinsurance segments. It aims to increase profitability in commercial auto insurance through initiatives to improve underwriting results. EMCI also focuses on innovation, such as through partnerships with insurtech startups, to enhance policyholder services and loss control programs.
The document discusses operating a bakery business owned by Samantha Johnson as either a sole proprietorship or a C corporation. Currently as a sole proprietorship, the bakery earns $100,000 in annual profit which is taxed at Samantha's personal 35% rate, plus $5,000 in stock dividends. If operated as a C corporation, the business profits would be taxed first at the corporate level and then again if distributed as dividends to Samantha. The document analyzes different business structures and their tax implications to determine if incorporating would provide an annual tax savings for Samantha.
This document classifies and defines different types of risk:
1. Systematic risk includes market risk, interest rate risk, and purchasing power risk which stem from overall market forces outside a company's control.
2. Unsystematic risk is specific to an individual company and can result from business risks like poor management or technological changes, or financial risks from using debt.
3. Risk is associated with the variability and uncertainty of investment returns. Expected return considers the probability weighted average returns from all possible outcomes, while risk is measured by the variance or standard deviation of returns. Both risk and expected return must be examined for investment decisions.
Putting a Price On Terrorism - Tammi Brown and Doug Butler, of MIJS, reflect on terrorism as an insurable risk and how captive assignations for premiums should be organized.
The document discusses abusive tax shelters involving captive insurance companies that remain on the IRS's annual "Dirty Dozen" list of tax scams. It describes how some promoters set up illegitimate micro captive insurance companies for businesses to avoid taxes, by having businesses pay exorbitant "insurance premiums" that lack proper underwriting to the captive insurers they own, and take improper tax deductions. However, the IRS has not added micro captives directly to its listed transaction list, as they can be legitimate if set up and operated properly for valid insurance purposes.
EMC Insurance Group Inc. provides property and casualty insurance and reinsurance. It has a diversified book of business across commercial and personal lines. The company benefits from its pooling agreement which spreads risk across a large capital base and geographic regions. It focuses on local market presence through regional branches and guided autonomy. This allows the company to strengthen agency relationships and target products and pricing to specific territories.
This document discusses key concepts related to life insurance premiums, including:
- Premium components include interest, expenses, mortality, benefits, bonus loading, taxation, and inflation.
- There are different types of premiums such as risk premium, net premium, and office premium. Premium calculation is complex and involves actuarial and statistical principles.
- Insurers establish a life fund to hold all income from life insurance policies to exclusively meet liabilities and claims expenses.
- Insurers conduct annual actuarial valuations to ensure assumptions about mortality, interest, and expenses are valid and the business remains financially sound. Bonus may be distributed if valuations show surplus funds.
This document discusses the differences between fully insured and self-funded health insurance options for employers. It introduces Premium Analysis, Inc., a company that provides risk analysis tools to help employers choose between funding options. Monte Carlo simulation software can analyze different scenarios and predict that self-funding has an 84.5% probability of equaling or improving costs compared to fully insured plans, by quantifying risks. The company's fee structure and compensation model are also outlined.
Multiple factors make municipal bonds an attractive investment option. They offer tax-exempt income, have low default rates, and provide tax advantages given recent tax law changes. The Pioneer AMT-Free Municipal Fund is an actively managed, investment-grade municipal bond fund that is nationally diversified across important economic sectors and has a history of strong long-term performance relative to its peers. It aims to provide tax-exempt income through a disciplined strategy of buying and managing municipal bonds while avoiding those subject to the Alternative Minimum Tax.
This document discusses volatility controlled investing strategies for defined benefit and defined contribution pension plans. It begins with an overview of the challenges pension plans face in generating returns while managing downside risk. It then provides examples of how volatility control strategies work by varying equity market exposure in response to changing volatility levels. Key benefits of volatility control for pension plans include downside protection, lower costs compared to other protection strategies, and better risk-adjusted returns than passive equity exposure. The document also addresses common questions about volatility control and provides references for further reading.
Selective Insurance Group reported financial results for the first quarter of 2009. Net loss was $0.25 per share compared to net income of $0.38 per share in 2008 due to lower investment income and realized losses. Operating income was $0.05 per share. While insurance operations performed well, investment results were challenged by losses from alternative investments and impairments. The company also announced a quarterly dividend of $0.13 per share.
Harry Long Fremont Management Presentationharrylong
The document summarizes a presentation made to Fremont management about issues with the company's personal lines business. It notes a lack of underwriting discipline as evidenced by growing premiums despite underwriting losses. It criticizes the culture of denial among top executives and lack of a clear risk management policy. Specific problems in the political, economic and regulatory environment that contribute to underwriting difficulties are identified. Solutions proposed include ranking agencies by loss performance, stopping the use of credit scoring, accepting the difficult political situation, and expanding operations outside of Michigan.
This document discusses price optimization in insurance pricing and the controversy surrounding its use. It begins by explaining that several states have banned or limited price optimization, which considers non-risk factors like willingness to pay higher prices. The document then discusses what price optimization is, how it builds on traditional risk-based rating, and how it models demand and optimal pricing. While it can allow companies to increase profits, some see it as unfairly discriminating against equally risky policyholders. The future of price optimization and the role of CPCUs in understanding its impact are also examined.
- The document discusses a study on the effects of bank-insurance mergers and acquisitions (M&As) on shareholder value.
- Preliminary results from the event study analysis show that M&As in the sample generated positive abnormal returns overall, indicating positive wealth effects. Specifically, bank bidders saw significantly positive returns around the announcement dates.
- However, insurance bidders' returns were insignificant, conflicting with some prior studies that found both types of bidders experienced wealth changes. The results so far are limited but provide initial evidence on the shareholder impacts of bancassurance M&As.
The document discusses using analytics to help companies determine appropriate insurance coverage levels when they have little loss history to rely on. It describes quantifying a company's exposure by estimating the likelihood and potential costs of large losses based on industry data. The document provides an example of how a company could use industry loss data and distributions to analyze whether $75 million in coverage would adequately cover its risks 80-90-99% of the time. It emphasizes that analytics can provide credible support for insurance and risk transfer discussions.
Quantifies in dollars, the cyber risk for an enterprise, based upon historical industry data and rigorous statistical models.
Risk is calculated for custodial data (PII, PFI, CHD & PHI), based upon a peer company of the same size and industry, with the same value at risk.
This document discusses measuring the upselling potential of life insurance customers using a stochastic frontier model. It proposes that upselling potential should account for the insurer's selling inefficiency, not just changes to customer demographics. The model is applied to data from 5,000 customers of a life insurer. Key findings include:
- The model estimates the maximum premium each customer could provide (the frontier) and the inefficiency of the insurer's selling efforts (ui).
- Upselling scores are calculated based on how much more each customer could potentially purchase compared to their actual premium.
- The analysis found the insurer could have sold an additional 25% in premiums for over half of its customers by reducing selling inefficiency.
This presentation provides a brief insight into the need to undertake an analytics project, particularly as it pertains to claims management and fraud. To this end the presentation will touch on the general challenges confronting the property and casualty insurance industry, as well as the challenges and lessons learnt from early adopters of business intelligence. In the face of these challenges analytics holds the potential to generate substantial value as evidenced by several short case study examples. The presentation concludes with a look at the issue of fraud as it pertains to the industry and some of the metrics that are influenced by it.
The presentation draws extensively, and focuses on, the work and viewpoints from industry participants including; Accenture, IBM, Ernst & Young, Strategy Meets Action, Ordnance Survey, Gartner, Insurance Institute of America, American Institute for Chartered Property Casualty Underwriters, International Risk Management Institute and John Standish Consulting. References are included on each slide as well as on the “References” slides at the end of the presentation.
This document summarizes a study examining the effects of search frictions in commercial health insurance markets, particularly for "fully insured" small employers. The study develops a search model showing how frictions can lead to excess price dispersion and high turnover rates. Empirical analysis of insurance data supports the model, estimating moderate frictions that transfer substantial surplus from employers to insurers and increase turnover. The findings imply frictions reduce incentives to invest in long-term health and suggest policy responses like improving shopping tools, limiting plan variety, and regulating brokers and premium distributions.
Running Head RESPONSES 1RESPONSES 2Discussion3As fa.docxjeanettehully
Running Head: RESPONSES 1
RESPONSES 2
Discussion3
As far back as the money related crisis of 2008, when risk administrators on Wall Street watched feebly as their affiliations relaxed down, creating thought has been paid to gigantic business chance affiliation. Various affiliations have since moved new ERM programs or discharged more resources into existing ones, pushed somewhat by getting to be conclusive and rating-office appraisal of corporate danger affiliation.
General Motors is an affiliation produces contrasting sort of vehicles like both huge and sport vehicles near to Ford and sells a greater number of vehicles than joined by and large undertakings. As indicated by (Vlasic and Boudette, 2017) news story in The New York times Mr.Reuss remarked that "GM has no plans yet to dispose of all turn over motors, they are essentially importance to pass on new line of vehicles notwithstanding definitively existing ones".
"For the most part, chance workplaces have an incredible piece of the time been seen as the division that says no, got close to the culmination of a decision system to endorse a technique," says Steve Culp, administering head of Accenture Management Consulting's threat affiliation gathering. "In any case, in case you believe you need to improve to make, you ought to in like manner handle that you require danger with you from the most dependable beginning stage, to appreciate what new challenges will come and how you can best direct those."
Experience chance relationship at GM suggests checking and diminishing risk on one hand and finding openings in chance on the other. "Dan Ammann has endeavored us to be creative in seeing rising or powerless side threats that we may not commonly consider," says Thelen, while "Dan Akerson is agreed with our view that hazard isn't consistently a negative." Without a defenselessness, Thelen says GM's ERM program is giving a high ground.
Would gm have the choice to disentangle the impact of ERM into totally used budgetary estimations, for instance, return on capital or EBITDA? "Certain perils will better move themselves to these quantifiable estimations, while others are even more productively to survey," answers Thelen. "In stretch testing conditions, we do join our work to our made key execution markers to draw in the relationship to pick demonstrated decisions among decisions".
Discussion1
As far back as the monetary emergency of 2008, when hazard administrators on Wall Street observed weakly as their organizations liquefied down, expanding consideration has been paid to big business chance administration. Numerous organizations have since propelled new ERM programs or emptied more assets into existing ones, pushed to some degree by expanding administrative and rating-office investigation of corporate hazard administration.
It's nothing unexpected that numerous ERM programs — which take an all-encompassing perspective of an organization's heap dangers, recognizing the material ...
This document discusses various types of risk including business risk, financial risk, credit risk, market risk, operational risk, legal risk, political risk, and liquidity risk. It provides definitions and examples for each type of risk. Business risk depends on factors like competitive environment, consumer preferences, and government policies. Financial risk depends on a company's debt-to-equity ratio and coverage ratios. Credit risk is the risk of default on debt obligations. Market risk includes risks from changes in currency exchange rates, interest rates, equity prices, and commodity prices.
This document provides an overview of industry analysis and its importance for corporate and business strategy. It discusses how analyzing the determinants of industry profitability - including customer demand, competition intensity, and supplier bargaining power - can help assess industry attractiveness and structure. The document introduces Porter's Five Forces framework for analyzing competition within an industry and identifying factors that influence profit potential. It emphasizes that understanding how macroenvironmental trends affect a firm's industry environment is crucial for strategic planning.
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.
This document discusses applying data mining techniques to construct a risk factor model for predicting building fire insurance claims. Specifically:
1. It analyzes building fire insurance claim data using a backpropagation neural network (BPN) model to identify important risk factors and their weightings for predicting claims.
2. The BPN model was trained on historical data and achieved 85.5% accuracy on the training data and 82.42% on test data, demonstrating its ability to generalize.
3. The identified risk factors included building structure, operations, fire equipment, electrical systems, security, and fire prevention measures. Analyzing these factors can help insurers better evaluate risks and make underwriting decisions.
Data Mining Applied To Construct Risk Factors For Building Claim on Fire Insu...theijes
The International Journal of Engineering & Science is aimed at providing a platform for researchers, engineers, scientists, or educators to publish their original research results, to exchange new ideas, to disseminate information in innovative designs, engineering experiences and technological skills. It is also the Journal's objective to promote engineering and technology education. All papers submitted to the Journal will be blind peer-reviewed. Only original articles will be published.
The papers for publication in The International Journal of Engineering& Science are selected through rigorous peer reviews to ensure originality, timeliness, relevance, and readability.
Theoretical work submitted to the Journal should be original in its motivation or modeling structure. Empirical analysis should be based on a theoretical framework and should be capable of replication. It is expected that all materials required for replication (including computer programs and data sets) should be available upon request to the authors.
The International Journal of Engineering & Science would take much care in making your article published without much delay with your kind cooperation
Chapter 9ReliabilityWhat is ReliabilityReliability is.docxmccormicknadine86
Chapter 9
Reliability
What is Reliability?
Reliability is concerned with questions of consistency
Other terms for reliability are:
Repeatability
Reproducibility
Stability
Consistency
Predictability
Agreement
Homogeneity
Measurement
Measurement is the assignment of number to object or events according to certain rules (Carmines and Zeller, 1979)
Measurement
Measurement is important in quantitative research because:
Quantification allows for powerful statistical analysis
Numbers are often more clearly communicated
Objectivity is increased
Efficiency may be increased
Levels of Measurement
Nominal: a label but nothing more
Categorical: identifies group membership
Ordinal: indicates an order
Interval: also in order but an estimation of distance between the scores
Ratio: order, defined distance, and a zero point
Measurement Error
The sources of error causing unreliability may be one or more of the following:
Measurement is inaccurate or inconsistent
Raters or testers are inaccurate or inconsistent
Measurement Error
The sources of error causing unreliability may be one or more of the following:
Phenomenon being measured varies from one measurement time to the next
The situation is confounding the measurement
Classic Measurement EquationX =t +eObservedTrueRandomScoreScoreError
Consistency
In order to maintain consistency of measurement there needs to be:
Interrater reliability
Intrarater reliability
Intercoder reliability
Cohen’s Kappa
A way to calculate the percent of agreement between the two coders
K = fo – fc K = kappa
N – fc fo = frequency of agreement
fc = frequency expected by chance
N = number evaluated
Test-Retest Reliability
A type of reliability that is evaluated by administering the same test to the same people or taking the same measurement on the same people after a specified period of time
The results of the two testing times are then compared statistically
Test-Retest Reliability
Factors affecting the test-retest reliability:
Assumes stability in the phenomenon being measured
May be affected by reactivity
Practice effect may also affect reliability
Test-Retest Reliability
Ways to calculate test-retest reliability include:
Pearson product moment correlation
Intraclass correlations (ICCs)
Homogeneity
Cronbach’s alpha can be used to test the homogeneity of items within a measure
It indicates the extent to which all of the items on the test are “behaving” similarly
Homogeneity
Alpha of 0.70 is acceptable for new measures
Alpha of at least 0.80 is expected for established measures
Higher alphas (at least 0.90 or higher) are desirable for use in clinical evaluation
Reliability of Physical Measures
Systematic error: a consistent error
Random error: inconsistent, unpredictable errors
Random errors can cancel each other out unless the researcher know how to detect them by using the technical error of measurement (TEM)
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Stock Versus Mutual Ownership Structures: The Risk Implications
1. Stock Versus Mutual
Ownership Structures:
The Risk Implications
Paper by Joan Lamm-Tennant and Laura T. Starks
Presentation by Michael-Paul James
2. Table of contents
Introduction Hypothesis
coexistence of mutual
and stock insurance firms
questions, context, issues
Across Lines
risk type by-line &
organization preference
Across Firms
firm-specific measures of
risk & organization type
01 02
04 05
Data & Method
data description and
approach
Geography
risk analysis across
geographic area
03
06
4. Organizational Structures
● Functions of organizations
○ Managerial
○ Owner, Risk Bearer
○ Customer, Policyholder
● Two Organizational Structures
○ Stock insurers separate all three functions
○ Mutual insurers merge policyholder and ownership
● Endogeneity in ownership structure
○ Ownership structure affects firm decision making
○ Firm environment influences ownership structure
5. Hypothesis Conflict
● Coexistence of both forms in Property liability insurance industry
○ Mutual: less risky activities
■ Due to agency problems (Fama & Jensen, Mayers & Smith)
■ Due to adverse selection problems (Smith & Stutzer)
○ Mutual: more risky clients
■ Due to efficiency of risk sharing arrangements (Doherty &
Dionne)
7. 4 Theories to Explain Dual Form Coexistence
● Managerial Discretion Hypothesis
○ Mayers & Smith (1981, 1986, 1988, 1990, 1992)
● Employing the Agency Paradigm
○ Fama & Jensen (1983, 1983)
● Adverse Selection Problems
○ Smith and Stutzer (1990)
● Efficiency of Risk Sharing
○ Doherty and Dionne (1991, 1992)
8. Managerial Discretion Hypothesis
● Mayers & Smith (1981, 1986, 1988, 1990, 1992)
● Managerial Discretion Hypothesis: Organizational form exploits the
cost/benefit differences in incentive conflicts between policyholders
and owners and between owners and managers.
● The more decision authority, the greater potential for self-interest.
○ Mutual managers have greater authority and higher control costs
○ Mutual firms prevail when managerial discretion is less prevalent
■ Mutual insurers associated with less risky activities.
○ Stock firms prevail when management discretion is crucial.
■ Stock insurers associated with more risky activities.
9. Employing the Agency Paradigm
● Fama & Jensen (1983, 1983)
● Relative efficiencies to control agency problems leads to the choice
of stock or mutual form of organization.
● Mutuals prevail with lower costs to valuing, expanding, and contracting
assets
● Uncertain future cash flows are more often associated with stock
insurers more than mutual insurers
10. Adverse Selection Problems
● Smith and Stutzer (1990)
● Exploit adverse selection problem & aggregate non-diversifiable risk
○ Adverse selection: One party has more accurate (different)
information than the other (asymmetric information)
● Two types of insurance policies
○ Participating: Price is determined ex post (after).
■ Insured shares operating risk
■ Purchased by low risk insurance customers
■ Mutual is participating due to residual claims
○ Nonparticipating (Stock): Price is determined ex post (before).
■ Insured does not share operating risk
■ Purchased by high risk insurance customers
■ Stock is nonparticipating more often.
11. Efficiency of Risk Sharing
● Doherty and Dionne (1991, 1992)
● Focus on differences in risk sharing efficiencies between participatory
and nonparticipatory policies (focus on undiversified risk)
● When risk isn’t easily diversifiable, combining policy and equity claims
mitigates adverse selection issues.
● Mutuals assume high risk lines more efficiently than stock insurers.
● Note: This seemingly opposes the three previous theories
12. Setting up the model
● Proxy for risk that applies to both stock and mutual insurers
○ Variance of loss ratio
■ Variance of an insurer’s losses normalized for size
■ Loss ratio: Losses incurred / premiums earned
■ Correlations
● Expenses not included but correlated with profit ratio
● Correlated with uncertainty of future net cash flows (F&J)
● Correlated with business riskiness (M&S)
● Variance of losses lower for mutual (S&S)
● Risk pooling with consolidated groups correlates with
undiversified risk (D&D)
13. Contribution
● Most comprehensive study covering 95% of the US property-liability
insurance assets
● Longer 8-year data analysis than previous studies
● More comprehensive risk measures
● Analysis across firms, lines of business, and geographic areas
● Addressed competing hypothesis
● Effectively addressed agency cost, adverse selection, and efficient
risk-sharing hypotheses.
15. Data Sources and Methods
● Data Sources
○ Data on property-liability insurance companies
■ A. M. Best data tapes for 1980-87
○ Ownership Data
■ Moody's Bank and Finance Manual
■ Best's Insurance Reports
○ Vetting Criteria
■ Exclude all but stock and mutual forms
■ Only pure stock firms (not owned by mutuals)
■ Verifiable structure
■ Continuous data
○ Final Sample
■ 79 stock insurers and 91 mutual insurers
17. Logistic Regression Equation
● Pi
= probability that the firm is in the mutual form,
● Sizei
= relative size of the firm to all sample firms
● Riski
= firm's total risk (variance of the firm's loss ratio)
● ei
= error term
● Total risk related to organizational type controlling for size
● Logistic regression model with maximum likelihood estimation
○ Independent variables not normally distributed
18. Table 1: Logistic Regression of Firm Type
● Risk is measured as the variance of a firm's total loss ratio, ranked across all sample firms
● Size is measured as the percent of a firm's total premiums earned relative to all firms'
premiums earned.
● The size variable is then averaged by firm across the 8-year sample period, 1980-87.
● Logistic R-statistic = .174.
TABLE 1
Logistic Regression of Organization Type (Mutual = 1) on Risk and Size for 170 Insurers
Variable Parameter Estimate Standard Error χ2
Probability
Intercept 1.0917 0.3533 9.55 0.002
Risk -0.0088 0.0032 7.48 0.006
Size -0.7909 0.3861 4.2 0.04
19. TABLE 2: A
Risk Analysis across Mutual and Stock Insurance Firms
A. Distribution of Variance of Insurer's Total Loss Ratio (Averaged by Firm across Years 1980-87)
Percentile Standard
N 100 75 50 25 0 Mean Deviation
Stock firms 78 62.44 1.07 0.5 0.25 0.03 1.84 7.15
Mutual firms 91 4.74 0.59 0.35 0.22 0.07 0.6 0.84
● Each variable is averaged by firm across the 8-year sample period of
1980-87.
● Median total Variance for stocks .5% and mutuals .3%
20. TABLE 2: B
Risk Analysis across Mutual and Stock Insurance Firms
B. Spearman's Correlation Coefficient across 170 Firms (Probability r > 0)
Number of
Number Number Regulatory Organization
Variance Size of States of Lines Areas Type
Variance 1.000 -0.112 0.164 0.041 0.185 -0.197
Indicates the variance of a firm's total loss ratio.
(0.000) (-0.143) (-0.032) (-0.594) (-0.016) (-0.010)
Size 1.000 0.581 0.654 0.480 -0.279
Relative size (a firm's total premiums earned/all
firms' premiums earned) x 100. (0.000) (0.000) (0.000) (0.000) (0.000)
Number of states 1.000 0.538 0.906 -0.531
Indicates the number of states in which a firm
has premiums earned. (0.000) (0.000) (0.000) (0.000)
Number of lines 1.000 0.496 -0.251
Indicates the number of lines in which a firm has
premiums earned. (0.000) (0.000) (0.000)
Number of regulatory areas 1.000 -0.477
Indicates the number of state regulatory areas in
which a firm has premiums earned. (0.000) (0.000)
Organization type 1.000
This is a dummy variable that is zero for stock
firms and one for mutual firms. (0.000)
22. TABLE 3: A
Concentration in Lines of Business by Mutual and Stock Insurers Averaged across Years 1980-1987: Analysis of Which Organization Type
Has a Greater Proportion of Premiums Concentrated in a Particular Line of Business
Median% of
Firm's Premiums in Line*
Median Two-Sample Test
(Normal Approximation)
Line Stock Mutual Z Prob> Z
Lines with more statistically significant concentration by mutuals:
3 Farm owners multiple peril 0.26 1.57 4.02 0.0001
4 Homeowners multiple peril 6.29 13.21 4.33 0.000
16 Auto liability 15.94 27.47 3.56 0.0004
17 Auto physical damage 12.41 20.19 2.13 0.0329
Lines with more statistically significant concentration by stocks:
7 Inland marine 2.4 1.43 -2.69 0.0071
10 Earthquake 0.07 0.02 -2.93 0.0034
14 Workers compensation 13.57 6.66 -2.96 0.003
15 Other liability 6.51 2.37 -3.94 0.0001
19 Fidelity 0.13 0.06 -3.42 0.0006
20 Surety 1.01 0.05 -5.79 0.000
Median
SD
.047
Median
SD
.106
23. TABLE 3: B
Concentration in Lines of Business by Mutual and Stock Insurers Averaged across Years 1980-1987: Analysis of Which Organization Type
Has a Greater Proportion of Premiums Concentrated in a Particular Line of Business
Median% of
Firm's Premiums in Line*
Median Two-Sample Test
(Normal Approximation)
Line Stock Mutual Z Prob> Z
Lines with no significant difference in concentration between stocks and mutuals:
1 Fire 2.67 2.89 0.66 0.5085
2 Allied lines 1.14 1.19 0.76 0.4473
5 Commercial multiple peril 5.65 4.6 -0.51 0.6101
6 Ocean marine 0.48 0.29 -1.2 0.2294
8 Miscellaneous 0 0 0.41 0.6818
9 Medical malpractice 0.28 0.01 -1.51 0.1299
11 Group accident and health 0.93 0.79 0.43 0.6637
12 Credit accident and health 0.59 0.07 -1.19 0.2353
13 Other accident and health 0.2 0.16 -0.18 0.8533
18 Aircraft 0.3 0.23 -0.15 0.8831
21 Glass 0.02 0.01 0.2 0.8438
22 Burglary and theft 0.06 0.05 -1.3 0.1929
23 Boiler and machinery 0.02 0 -1.2 0.2313
24 Credit 0.03 0.02 -1.31 0.1908
25 International 0.07 0.09 0.5 0.6156
26 Reinsurance 0.99 1.06 -0.3 0.765
25. Rate Regulatory Areas
● 2 groups, 8 classes of regulatory laws (Witt and Miller 1983)
● Competitive Areas
○ No-rate regulatory law: 1 State
■ Rates unregulated but subject to state antitrust laws, no rate
collaboration, monitored by advisory boards.
○ No-filing law: 3 States
■ No filing nor rate approval requirements with authorities.
Rating bureau advisory. Monitor on ex post basis.
○ Information-filing law: 7 States
■ Filing requirement but rate approval not required. Rating
bureau advisory. Monitor on ex post basis.
26. Rate Regulatory Areas
● Noncompetitive Areas
○ File and use law: 10 States
■ Rates filed and approved by regulatory authorities.
○ Modified prior approval law: 2 States
■ Rates filed & approved prior to implementation (exceptions)
○ Prior approval law: 24 States
■ Rates filed & approved prior to implementation (no exceptions)
○ Statutory bureau law: 1 state
■ Compulsory Insurer membership in designated rating bureau
○ State-made rates: 2 states
■ Rates are set by a state agency, deviations allowed
27. TABLE 4
Concentration in State Regulatory Areas by Mutual and Stock Insurers Averaged across Years 1980-87
Analysis of Which Organization Type Has More Premiums Concentrated in a Particular Regulatory Area
Median % of Firm's
Premiums in State
Median Two-Sample Test
(Normal Approximation)
More Concentrated
Organization Type in
Area*
(Number of States) Stock Mutual z Prob> Z
Competitive areas:
1. No-rate regulation (1) 3.55 3.59 0.59 0.557 ...
2. No-filing law (3) 10.23 7.47 -2.29 0.0219 stock
3. Information filing (7) 12.41 10.38 -1.69 0.0903 stock
Noncompetitive areas:
4. File and use (10) 10.04 10.11 1.24 0.2158 ...
5. Modified prior approval (2) 3.39 2.12 -3.39 0.0007 stock
6. Prior approval (24) 35.56 51.17 4.07 0 mutual
7. Statutory bureau (1) 1.24 2.34 1.8 0.0717 mutual
8. State-made rates (2) 6.93 8.18 0.89 0.3748 ...
● Rate regulatory areas are defined in the App.
● Indicates the median across firms of the percent of the firm's regulatory area. The total premiums earned in an area were averages 1980-87
● Indicates the organization type with the higher significant concentration of business in a state regulatory area
28. Summary
● 4 Hypothesis concerning the coexistence of stock and mutuals
○ Mutuals assume less risk
■ Agency theory and adverse selection
○ Mutuals assume more risk
■ Efficient risk sharing theory
● Findings
○ On average, stock firms have higher total risk than mutuals,
measured by variance to loss ratios
■ Consistent results across firm, (risky) business lines, and (risky)
geography
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