The following will be discussed in this chapter: Life insurance operations, property and casualty insurance operations, health care insurance operations, business insurance, regulation of insurance companies, exposure to risk, valuation of an insurance company, valuation of an insurance company. | Chapter 25 Insurance and Pension Fund Operations Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Background Life insurance operations Property and casualty insurance operations Health care insurance operations Business insurance Regulation of insurance companies Exposure to risk Valuation of an insurance company Performance evaluation Chapter Outline (cont’d) Interaction with other financial institutions Participation in financial markets Multinational insurance companies Background on pension funds Pension regulations Pension fund management Performance of pension funds Pension fund participation in financial markets Participation in financial markets Background Insurance companies: Provide various form of insurance and investment services to individuals Charge a fee (premium) for the services Provide a payment to the insured (or a named beneficiary) under conditions specified by the insurance policy contract Help individuals or firms to reduce the potential financial damage due to specified conditions Common types of insurance are life insurance, property and casualty insurance, health insurance, and business insurance Background (cont’d) Individuals who are more exposed to specific conditions that cause financial damage will purchase insurance against those conditions Adverse selection problem Insurance can cause the insured to take more risks because they are protected Moral hazard problem Underwriters are employed by insurance companies to calculate the risk of specific insurance policies Decide what types of policies to offer based on the potential level of claims and the premiums that they could charge Background (cont’d) Determinants of insurance premiums The premium is based on: The probability of the condition under which the company will need to provide payment The potential size of the payment in present value terms The degree of . | Chapter 25 Insurance and Pension Fund Operations Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Background Life insurance operations Property and casualty insurance operations Health care insurance operations Business insurance Regulation of insurance companies Exposure to risk Valuation of an insurance company Performance evaluation Chapter Outline (cont’d) Interaction with other financial institutions Participation in financial markets Multinational insurance companies Background on pension funds Pension regulations Pension fund management Performance of pension funds Pension fund participation in financial markets Participation in financial markets Background Insurance companies: Provide various form of insurance and investment services to individuals Charge a fee (premium) for the services Provide a payment to the insured (or a named beneficiary) under conditions .
