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WorksheetsRisk Management (Chapter 3)
Total questions: 10
Worksheet time: 10mins
Role of insurer Capital
- Poportional (pro-rata) percentage split
- Excess
- Treaty: as long as certain # is insured, then losses split this way
- Facultative: negotiated by two companies one on one
-policy holders are residual claimants
-have limited liability
-cannot raise capital by issuing equity (selling stock)
-reduces probability of insolvency
-acts as a cushion-as correlation increases, variance increases, so probability of insolvency increases
Reinsurance policy types
- Proportional (pro-rata) percentage split
- Excess
- Treaty: as long as certain # is insured, then losses split this way
- Facultative: negotiated by two companies one on one
-policy holders are residual claimants
-have limited liability-cannot raise capital by issuing equity (selling stock)
-reduces probability of insolvency
-acts as a cushion-as correlation increases, variance increases, so probability of insolvency increases
Mutual Insurer company
- Proportional (pro-rata) percentage split
- Excess
- Treaty: as long as certain # is insured, then losses split this way
- Facultative: negotiated by two companies one on one
-policy holders are residual claimants
-have limited liability
-cannot raise capital by issuing equity (selling stock)
-reduces probability of insolvency
-acts as a cushion-as correlation increases, variance increases, so probability of insolvency increases
Lower variability of claim costs by
-diversifying accross geographical areas (i.e. not all in one flood plane)
-across lines of business
investment in an insurer
underwriting
liabilities
insurer capital
Who holds more capital life insurance or property insurance
Risk of Assets and correlation of assets and liabilities (life insurance in mostly bonds)
Lowers the probability of insolvency; improves contract terms, protects value
life insurance
Benefit to owners to adding capital
Risk of Assets and correlation of assets and liabilities (life insurance in mostly bonds)
Lowers the probability of insolvency; improves contract terms, protects value
life insurance
Other factors (other than capital) affecting insolvency
Risk of Assets and correlation of assets and liabilities (life insurance in mostly bonds)
Lowers the probability of insolvency; improves contract terms, protects value
life insurance
Type of differences between investment in an insurer and a mutual fund as listed below, except:
Opportunity costs
Agency costs
Correlation of insurer liabilities with investors' other assets
Underpricing costs
Market Value of securities etc.
Insurer capital
Liabilities
Assets
Underwriting
Payments that the insurer promised to make for policies already sold out in the future
The MV of assets
The MV of liabilities
