1. Copyright © 2000 Addison Wesley Longman Slide #19-1 Chapter Nineteen INSURANCE COMPANIES AND PENSION FUNDS

2. Copyright © 2000 Addison Wesley Longman Slide #19-2 Insurance Companies: Major Employer

3. Copyright © 2000 Addison Wesley Longman Slide #19-3 Fundamentals of Insurance 1. There must be a relationship between the insured and the beneficiary. 2. The insured must provide full and accurate information to the insurance company. 3. The insured is not to profit as a result of insurance coverage. 4. If a third party compensates the insured for the loss, the insurance company’s obligation is reduced by the amount of the compensation. 5. The insurance company must have a large number of insured so that the risk can be spread out among many different policies. 6. The loss must be quantifiable. 7. The insurance company must be able to compute the probability of the loss’s occurring.

4. Copyright © 2000 Addison Wesley Longman Slide #19-4 Number of Life Insurance Companies in the U.S., 1950-1997

5. Copyright © 2000 Addison Wesley Longman Slide #19-5 Types of Insurance Life Insurance Health Insurance Property and Casualty Insurance

6. Copyright © 2000 Addison Wesley Longman Slide #19-6 Life Insurance Term Life Whole Life Universal Life Annuities Assets and Liabilities of Life Insurance Companies

7. Copyright © 2000 Addison Wesley Longman Slide #19-7 Expected Life of Persons at Various Ages

8. Copyright © 2000 Addison Wesley Longman Slide #19-8 Annual Premiums

9. Copyright © 2000 Addison Wesley Longman Slide #19-9 Distribution of Life Insurance Company Assets

10. Copyright © 2000 Addison Wesley Longman Slide #19-10 Mortgage Investment

11. Copyright © 2000 Addison Wesley Longman Slide #19-11 Property and Casualty Insurance Today Property Insurance Named-peril policies All-risk policies Casualty Insurance Reinsurance

12. Copyright © 2000 Addison Wesley Longman Slide #19-12 Insurance Management Screening Risk-Based Premium Restrictive Provisions Prevention of Fraud Cancellations of Insurance Deductibles Coinsurance Limits on the Amount of Insurance

13. Copyright © 2000 Addison Wesley Longman Slide #19-13 Pension Plan Definition: An asset pool that accumulates over an individual’s working years and is paid out during the nonworking years.

14. Copyright © 2000 Addison Wesley Longman Slide #19-14 Types of Pensions Defined-Benefit Pension Plans Annual Payment = 2% x average of final 3 years’ income x years of service Defined-Contribution Pension Plan Private Pension Plans Public Pension Plan Social Security

15. Copyright © 2000 Addison Wesley Longman Slide #19-15 Private Pension Plan Assets

16. Copyright © 2000 Addison Wesley Longman Slide #19-16 Social Security Decreasing, Participants Increasing