Financial Institutions: Insurance Companies Flashcards

Vocabulary flashcards covering the functions, types, regulation, and financial ratios of life and property-casualty insurance companies based on the lecture transcript.

Insurance Companies

Financial institutions that provide financial protection or coverage to individuals and organizations against potential future losses or risks.

Insurance Underwriter

An individual who assesses and prices risks for insurance companies.

Insurance Broker

An individual or entity that sells insurance contracts.

Life Insurance Policies

Policies that provide protection against untimely death or illness, and/or transfer wealth through time to retirement.

Property-Casualty Insurance

Insurance that protects against property damage, personal injury, and liability associated with specific events.

Annuities

Savings contracts that involve the liquidation of funds saved over a period of time.

Adverse Selection Problem

The problem where customers who apply for insurance policies are more likely to be those in need of coverage.

Actuaries

Professionals who reduce the risks of underwriting and selling insurance by analyzing mortality, morbidity, disability, and applying time-value-of-money tools.

Term Life Insurance

A type of life insurance that is closest to pure life insurance and has no savings element attached.

Whole Life Insurance

Life insurance that protects the individual over an entire lifetime rather than for a specified coverage period.

Endowment Life Insurance

A life insurance type that combines a pure (term) insurance element with a savings element.

Variable Life Insurance

Insurance that invests fixed premium payments in mutual funds of stocks, bonds, and money market instruments.

Universal Life and Variable Universal Life

Life insurance contracts that combine a pure (term) insurance element with a savings element.

Ordinary Life Insurance

Insurance marketed to individuals where policyholders make periodic premium payments in exchange for coverage.

Group Life Insurance

Life insurance that covers a large number of persons under a single policy.

Credit Life Insurance

Insurance that protects lenders against borrower death prior to the repayment of a debt contract, such as a mortgage or car loan.

Contributory Policy

An insurance arrangement where both the employer and the employee cover a share of the premiums.

Noncontributory Policy

An insurance arrangement where the employee does not contribute to the cost; the cost is paid entirely by the employer.

McCarren - Ferguson Act of 1945

An act that confirmed the primacy of states over federal regulation of insurance companies.

National Association of Insurance Commissioners (NAIC)

An organization that developed a coordinated examination system for state insurance commissions.

Insurance Guarantee Funds

Funds run by insurance companies that provide protection to policyholders when an insurance company fails.

Financial Services Modernization Act (FSMA) of 1999

An act that allowed commercial banks, investment banks, and insurance companies to exist as subsidiaries under one financial holding company (FHC).

Federal Insurance Office (FIO)

An office created by the Wall Street Reform and Consumer Protection Act of 2010 that reports to Congress and the president on the insurance industry.

Financial Stability Oversight Council (FSOC)

A council charged with identifying any financial institution that presents a systemic risk to the economy.

Property Insurance

Coverage related to the loss of real and personal physical assets; it protects your stuff.

Casualty Insurance

Protection against legal liability exposure for injuries or damage you cause to others; it protects you from being sued.

Loss Risk

The risk that premiums are insufficient to cover losses and administrative expenses after taking into account investment income.

Premiums Earned

Premiums received and earned on insurance contracts because time has passed with no claim filed.

Combined Ratio

A measure of overall profitability calculated as the loss ratio plus the ratio of loss-adjusted expenses to premium earned, plus commission and other acquisition costs, plus dividends paid.

Investment Yield

A measure calculated as $\frac{\text{Net Interest Income}}{\text{Premiums Earned}}$.

Operating Ratio

A measure of overall profitability calculated as $\text{Combined Ratio} - \text{Investment Yield}$.

Underwriting Cycle

A pattern that the profits in the Property-Casualty industry tend to follow.