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19 Cards in this Set
- Front
- Back
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Solvency
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The ability of an insurer to meets its financial obligations as they become due, even those resulting from insured losses that may be claimed several years in the future.
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Insurers primary source of capital
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Business operations
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How to achieve underwriting profit
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-Expense control
-Marketing -Appropriate ratemaking -Underwriting |
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Reevaluation of balance sheet values
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-Actions to change loss and LAE reserve valuations
-Transactions that recognize existing asset market values |
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Sale & leaseback transaction
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Owner of an asset sells the asset to another party and then leases the asset back from the new owner.
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Reducing stock dividends
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Only when the insurer is in serious need of capital as doing so may cause investors to lose confidence in the company.
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Reinsurance
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The transfer of insurance risk from one insurer to another through a contractual agreement under whichon insurer agrees, in return for a reinsurance premium, to indemnify another insurer for some or all of the financial consequences of certain loss exposures covered by the primarys insurance policies.
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Equity capital
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It is more expensive to raise this type of capital than to issue long-term debt, equity has the advantage of not increasing financial stress, because unlike the payment of interst on debt, the failure to pay dividends is not considered a default.
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Surplus note
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A type of unsecured debt instrument, issued only by insurers.
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Full demutualization
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A mutual insurers surplus is usually distributed to policyholders as stock.
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Mutual holding company conversion
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The original mutual insurer becomes a stock insurer that is wholly owned by a mutual holding company.
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Loss portfolio transfer
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A type of retroactive plan that applies to an entire portfolio of losses.
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Catastrophe bonds
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Securities structured to provide funds to help offset an insurers catastophe losses.
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SPRV
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Special purpose reinsurance vehicle. Created to exclusively write the specific coverage for the insurers risk to be covered.
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Companys dividend policy decision factors
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-The companys access to external sources of capital
-The expected rate of return on investment opportunities -Dividends as an indicator of the company prospective performance. -Tax considerations -Investor attitude toward uncertainty |
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Payout ratio
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The proportion of a companys earnings or net income paid out as dividends to shareholders.
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Factors affecting insurance industry dividends
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-Income measurement rules
-Cash flow -Capital structure -Ownership -Regulatory restrictions |
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Regulatory restrictions
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-Each state restricts the payment of stockholder dividends by insurers without approval from the state.
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Alternatives to dividends
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-Repurchasing corporate stock
-Expanding available investment opportunities |
