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PowerPoint Slides for Professors Spring 2010 Version

PowerPoint Slides for Professors Spring 2010 Version.

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PowerPoint Slides for Professors Spring 2010 Version

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  1. PowerPoint Slidesfor Professors Spring 2010 Version This file as well as all other PowerPoint files for the book, “Risk Management and Insurance: Perspectives in a Global Economy” authored by Skipper and Kwon and published by Blackwell (2007), has been created solely for classes where the book is used as a text. Use or reproduction of the file for any other purposes, known or to be known, is prohibited without prior written permission by the authors. Visit the following site for updates: http://facpub.stjohns.edu/~kwonw/Blackwell.html. To change the slide design/background, [View]  [Slide Master] W. Jean Kwon, Ph.D., CPCUSchool of Risk Management, St. John’s University101 Murray StreetNew York, NY 10007, USA Phone: +1 (212) 277-5196E-mail: Kwonw@stjohns.edu

  2. Risk Management and Insurance: Perspectives in a Global Economy 20. The Nature and Importance of Insurance Click Here to Add Professor and Course Information

  3. Study Points • The insurance production process • Overview of insurance worldwide • The international dimensions of insurance supply • The role of insurance in economic growth • Determinants of insurance market structure

  4. The Insurance Production Process

  5. The Production Process (Figure 20.1)

  6. The Role of Capital and Surplus • Insurance policies as contingent claim contracts that rely on pricing Inversion • The product priced before actual production costs are known • Thus, insurers factor in a margin for unfavorable pricing deviations • The greater an insurer’s capital compared with its premium writings and liabilities – that is, the less its financial leverage – the greater the perceived security and the more favorable its reception among informed buyers. • Harmonization of the standards and valuation methods in insurance is one of the important objectives that the IASB hopes to achieve.

  7. Pricing and Product Development • Pricing (premium rates and reserves) • Use of best estimates as to future losses and expenses with an eye toward competitiveness • The greater the average period between premium receipt and loss payout, the greater the influence of investment returns in setting premium rates. • Product innovation and price competitiveness are often understandably crucial determinants of success, especially for new entrants.

  8. Underwriting • Two key functions • Selection (or rejection) of application • Classification of “accepted” risks • It also requires knowledge of local conditions and the local environment.

  9. Claims Settlement • Life insurance • Typically can be settled easily • A local presence of the insurance company is not required. • Health insurance • Claims ranging from simple to complex • Health insurance market structure of the country affect claim complexity. • In lines where losses require on-site examination (e.g., property insurance), some type of local presence is typically necessary.

  10. Claims Settlement • Claims personnel, with the assistance of an actuary, estimate amounts to be established as balance sheet liabilities (reserves) for unpaid nonlife claims. The reserves are also known as: • Policy reserves • Mathematical reserves • Technical provisions • Contract situs • The jurisdiction whose law applies to contract creation, interpretation and enforcement • One of principal consumer protection issues within the insurance pricing, underwriting and claim settlement process

  11. Distribution – Marketing Channels Chapter 25 discusses distribution channels via other financial institutions • Direct response system • Distribution through agents • Captive (exclusive, tied) agents • Independent agents • Distribution through brokers • Distribution through other financial institutions • Countrywide variations exist.

  12. Investment Management • Insurers are key institutional investors in capital markets worldwide. • Regulators and supervisors pay close attention to the composition and management of invested assets of insurance companies  Chapter 21 • Nothing inherent in the investment management function requires a local presence.

  13. Investment Management • Foreign investments exacerbate the buyer’s (and the regulator’s) problem of information asymmetry. • National regulation typically places severe limits on foreign investments by domestic insurers. • A related but different concern arises with cross-border insurance trade. • If a foreign insurer in cross-border business fails to meet its obligations, the host-country insureds could be at a legal, not to mention a practical, disadvantage. • The resolution of this issue is essential if cross-border insurance is to grow.

  14. Overview of Insurance Worldwide

  15. Top 10 Global Insurers in 2007 (by revenue)

  16. Top 10 Global Insurers in 2008 (by revenue)

  17. World’s Largest Life Insurers (2005) (Table 20.1)

  18. Top 10 Global Life Insurers in 2007 (by revenue)

  19. World’s Largest Life Insurers (2008)

  20. World’s Largest Nonlife Insurers (2005) (Table 20.2)

  21. World’s Largest Nonlife Insurers (2007)

  22. World’s Largest Nonlife Insurers (2008)

  23. World’s Largest Reinsurers (2005) (Table 20.3)

  24. Top 10 Global Reinsurers in 2006 (by net premiums)

  25. Top 10 Global Reinsurers in 2008 (by net premiums)

  26. World’s Largest Intermediaries (2008) (new)

  27. Nature of Insurance Companies See also Chapter 24 (Insurance Regulation) • Ownership structure • Stock insurers • Mutual insurers • Assessment mutuals (e.g., Protection and Indemnity clubs) • Non-assessment mutuals • Licensing status • Admitted vs. nonadmitted insurers • Composite insurers • Place of domicile • Domestic vs. foreign insurer (alien insurer in the U.S.) • Home vs. foreign country

  28. 2008 World Insurance Swiss Re Sigma (2009)

  29. Total Real Premium Growth (2008)

  30. Total Real Premium Growth (1980 - 2008)

  31. Life Insurance Growth (1980 – 2008)

  32. Life Insurance Growth (2008)

  33. Solvency of Life Insurance (2002 – 2008)

  34. Nonlife Insurance Growth (1980 – 2008)

  35. Nonlife Insurance Growth (2008)

  36. Nonlife Insurance Solvency (1999 – 2008)

  37. Insurance Premiums - GDP (2008; All)

  38. Insurance Premiums - GDP (2008; Emerging)

  39. Insurance Density and Penetration (2008)

  40. Insurance Density and Penetration (2008)

  41. Insurance Density and Penetration (2008)

  42. Insurance Density and Penetration (2008)

  43. Insurance Density and Penetration (2008)

  44. Insurance Density and Penetration (2008)

  45. Insurance Density and Penetration (2008)

  46. Insurance Density and Penetration (2008)

  47. Insurance Density and Penetration (2008)

  48. Insurance Density and Penetration (2008)

  49. Insurance Supply

  50. Cross-border Insurance Trade The E&S system is unique to the U.S. which maintains state regulation. • Pure cross-border insurance trade • Own-initiative cross-border insurance trade • Consumption-abroad cross-border insurance trade • Difference-in-conditions (DIC) and difference-in-limits (DIL) insurance trade • Excess and surplus (E&S) insurance • E&S brokers

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