INSURANCE COMPANY

Seminar 5 Group B)
Rose Cheung
Katie Butler
Mariam Faizal
Kate Egorova
Virginia Wong
 What is insurance ?
• A contract between the policyholder and an
insurance company.

• The policyholder pays a premium to obtain

insurance coverage.

• insurance company provide a guarantee of

compensation for the loss

• Protect yourself against risks (e.g. a car accident)

 The different types of insurance
• Life insurance

• Property insurance

• Health and protection insurance

• Auto insurance

• Etc…
 Insurance Company Analysis
Profitability – a key indicator of future financial stability and
policyholder’s security; stability of income generated as an
indicator of volatility of future results
Leverage – the degree to which an insurer’s surplus is exposed to
risks from investment activities
Liquidity – good liquidity helps an insurance company meet the
policy holder’s obligations promptly. An insurer’s liquidity depends
upon the degree to which it can satisfy its financial obligations by
holding cash and investments that are sound, diversified and liquid
or through operating cash flows
 Factors that affect performance
1. Interest Rates

• Increase  increased cost of borrowing

• Decrease  replace old debt with new debt at lower rate

^Take advantage of interest rate fluctuations

• Investing collected premiums 

income dependent on interest rates

www.campbellwa.com
 Factors that affect performance (2)
2. Demographics

• Increasing age  increasing reliance on life insurance

products

• Products:
• Investment
• Savings
• Death benefit
www.theodysseyonline.com

• Baby boomers approaching retirement age  profits

 Reference

• https://thelawdictionary.org/article/what-are-the-different-
types-of-insurance/
• http://www.cii.co.uk/membership/new-starters/types-of-
insurance/
 Industry Examples
AIG and MBIA: Financial Markets

• AIG: $99.2 billion loss in the 2008

financial crisis
• MBIA: $7.7 billion loss, lower credit
rating
• Why? Credit default swaps and
securities lending problems + large
debt
• Systemically important- similar to
large investment banks
 Industry Examples (2)
Role in the financial markets/crisis
• Can help markets withstand shocks: ‘long
term investment horizons’
• Too many functions/interconnections: if
one fails, others generally do too
• Started in the mortgage insurance market
The largest market participants in the UK:
• Aviva, AIG, RSA, AXA, Direct Line Insurance

The largest market participants worldwide:

• AXA, Zurich Insurance Group, China Life Insurance, Berkshire Hathaway,
Prudential plc
 Differences from pension funds, sovereign wealth funds,
and private equity companies

• Pension funds- these provide retirement

income, not insurance e.g Federal Old-age and
Survivors Insurance Trust Fund
• Sovereign wealth funds- pools of money from a
country’s reserves to benefit the country’s
economy + citizens. These deal with investment
and not insurance eg. The UAE Investment
Authority
• Private equity firm- provides
investment/financial backing in the private
equity of companies e.g. the Carlyle Group