Fabozzi金融市场与金融机构基础课后答案.docx

1、Fabozzi金融市场与金融机构基础课后答案Fabozzi金融市场与金融机构基础课后答案(总12页)CHAPTER 6INSURANCE COMPANIESTYPE OF INSURANCE COMPANIESInsurance companies sell insurance policies for a premium. They have two sources of income: underwriting income, and investment income. Life Insurance The life insurance company pays the benefici

2、ary of the life insurance policy in the event of the death of the insured. Health Insurance The health insurance company pays the insured all or a portion of the medical treatment of the insured. Until the last decade, the major type of health insurance available was indemnity insurance. Due to the

3、lack of constraints and incentives for cost savings, the medical service insured by indemnity insurance became very expensive. In response, various forms of managed health care have been developed. In general, these forms of managed health care put constraints on the choice of the provider by the in

4、sured and on the types of service provided by the provider. Property and Casualty Insurance Property and casualty (P&C) insurance companies insure the risk of damage to various types of property. Liability Insurance The risk insured against is litigation, or the risk of lawsuits against the insured

5、due to actions by the insured or others. This is typically a third-party claim. Disability Insurance Disability insurance insures against the inability of employed persons to earn an income. Typically, “own occ” disability insurance is written for professionals in white-collar occupations, and “any

6、occ” for blue-collar workers. There are two types of policies regarding the sustainability of the policy. First, guaranteed renewable is a term where the issuer has to sustain the policy for a specified period of time, but can change the premium rates for the entire class. The other type is noncance

7、llable and guaranteed renewable whereby the issuer has no right to make any changes in any policy during the specified period. Long-Term Care Insurance Long-term care insurance provides coverage for custodial care for the aged who are no longer able to care for themselves. Structured SettlementsStru

8、ctured settlements are fixed, guaranteed periodic payments over a long period of time, typically resulting from a settlement on a disability policy or other type of policy. Investment Oriented Products A guaranteed investment contract or guaranteed income contract (or simply GIC), is a pure investme

9、nt product. In a GIC, a life insurance company agrees, for a single premium, to pay the principal amount and a predetermined annual crediting rate over the life of the investment, all of which is paid at the maturity date. A life insurance company agrees in return for a premium to pay the principal

10、amount and a predetermined annual crediting rate over the life of the investment. Effectively, a GIC is a zero coupon bond issued by a life insurance company and as such exposes the investor to the same credit risk. Some GICs require a single premium payment (bullet), others provide windows wherein

11、deposits are accepted over time at the same interest rate. GICs are popular contracts for pension funds, since interest rate risk assumed by insurance company. But investors still have to worry about the credit risk of the insurance company. AnnuityAn annuity is often described as a mutual fund in a

12、n insurance wrapper. The income and realized gains are not taxable if not withdrawn from the annuity product. Thus, the “inside buildup” of returns receives a favorable tax treatment. Annuities can be either fixed, or variable. For a single payment or premium the insurance company will provide fixed

13、 payments for the life of the policyholder. It can also provide a “lump sum” payment to the retiree after a number of years of accumulating and investing premium payments. Monoline Insurance Companies Monoline insurers guarantee the timely repayment of the bond principal and interest when a bond ins

14、urer defaults on these payments. The insured securities have traditionally been municipal bonds, but they now include structured finance bonds, CDOs, CLOs, and asset-backed bonds. Monoline insurers have been rated AAA and must have this high rating to be effective since they transfer their rating to

15、 the bond issue being insured. INSURANCE COMPANIES VERSUS TYPES OF PRODUCTS Traditionally, life and health products were coupled by an insurance company because of some of the similarities of the products. Property and casualty products were also provided by P&C companies. Companies that provide bot

16、h types of insurances (life, health, property, casualty) are called multiline insurance companies. Investment products tend to be sold by life insurance companies. Recently, health insurance companies have separated from life insurance. This change has been due to mainly federal regulation of the he

17、alth industry. Life insurance companies have focused on investment products. Also, disability insurance is now sold primarily by pure disability companies. FUNDAMENTALS OF INSURANCE INDUSTRYA fundamental aspect of the insurance industry results from the relationship between the revenues and costs. A

18、 company collects its premium income initially and invests these receipts in its portfolio. The payments on the insurance policy occur later and, depending on the type of insurance, in a perhaps very unpredictable manner. The payments are contingent on potential future events. An insurance policy is

19、 a binding contract for which the policyholder pays premium in exchange for the insurance companys promise to pay specified amounts contingent on future events. The accepted policy is an asset for the owner and a liability for the insurance company. Life insurance and property and casualty insurance

20、 companies are financial intermediaries that, for a price, will make a payment if a certain event occurs. They function as risk bearers. The principal event that the life insurance company insures against is death: a life insurance company agrees to make either a lump sum payment to the beneficiary

21、of the policy or make a series of payments. However, life insurance protection is not the only financial product sold by these companies. A major portion of the business of life insurance companies is now in the area of providing retirement benefits. The key distinction between life insurance and pr

22、operty and casualty insurance (P&C) companies is the difficulty of projecting whether a policyholder will be paid off and how much the payment will be.REGULATIONS OF INSURANCE INDUSTRYRegulation is primarily at the state level as a result of 1945 federal statute (McCarran-Ferguson Act). Model laws a

23、nd regulations are developed by National Association of Insurance Commissioners (NAIC). Insurance companies are also rated by the rating agencies. To assure financial stability, insurance companies must maintain reserves or surplus, which are the excess of assets over liabilities. State statutory su

24、rplus requirements are called statutory surplus, which is distinguished from generally accepted accounting principles (GAAP) surplus. STRUCTURE OF INSURANCE COMPANIESInsurance companies are really a composite of three companies. First there is the “home office” or actual insurance company. Second, t

25、here is the investment component, which invests the premium collected in the investment portfolio. This is the investment company. The third is the distribution component of the sales force. There are different typed of distribution forces. Finally there are also brokers who sell insurance products

26、of many companies. Insurance companies are attracted by commercial bank customer contacts. As a result, commercial bank distribution of insurance company products has grown. This relationship is called bankassurance. FORMS OF INSURANCE COMPANIESThere are two forms of insurance companies: stock and m

27、utual. A stock insurance company is similar in structure to any corporation or public company. Shares (of ownership) are owned by independent shareholders and are traded publicly. The shareholders care only about the performance of their shares that is the stock appreciation and the dividends. The i

28、nsurance policies are simply the products or business of the company. In contrast, mutual insurance companies have no stock and no external owners. Their policyholders are also their owners. The owners, that is the policyholders, care primarily or even solely about the performance on their insurance

29、 policies, notably the companys ability to pay on the policy. Since theses payments may occur considerably into the future, the policyholders view may be long term. Finally a new form of insurance company, which is a hybrid between a pure mutual and a pure stock company has been approved by some sta

30、tes and implemented by some insurance companies in these states since their introduction in 1996. This form is called a mutual holding company (MHC). INDIVIDUAL VERSUS GROUP INSURANCE Insurance products can be sold on individual and group bases. Also, in the P&C business, insurers can sell personal

31、lines and commercial lines of insurance products. TYPES OF LIFE INSURANCE There are two fundamentally different types of life insurance: term (life) insurance and cash value life insurance. Term Insurance Term policies pay off only on death. Three are no investment benefits and so the premiums are s

32、ubstantially lower than those on whole life policies. Most group policies are term policies. “Term” implies that coverage is available only during the premium-paying term of the contract.Cash Value or Permanent Life Insurance There is a broad classification of life insurance, which is cash value, or permanent or investment type life insurance. A common type of cash value life insurance is whole life insurance. This cash value can be withdrawn and can also be borrowed against by the owner of the policy. If the owner wishes to let the policy lapse, he or she can withdraw the cash