290QR_Lesson_14

时间：2020-06-26 来源：乌哈旅游

LOMA 290Insurance CompanyOperations

An Overview of

Financial Management

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LESSON FOURTEEN1

Lesson 14Profitability

profitability:the degree of success a business has in generating returns to its owners—including its ability to generate profit and increase the value of the companyreturn:the reward, profit, or compensation that an investor receives for taking a riskAn insurer must maintain a balance between attempting to maximize profit and avoiding undue risk.

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Lesson 14Organization ofFinancial Management Specific responsibilities of financial management include:Planning the company's financial strategyManaging capital and surplusManaging cash flowsManaging investmentsReporting the company's financial resultsOther accounting dutiesConducting financial audits and internal controlsPerforming financial analysis© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN3

Lesson 14Basic Accounting Documents

financial statement:a report that summarizes a company's financial situation or major monetary events and transactionsbalance sheet:a financial document that lists the values of a company's assets, liabilities, and capital and surplus as of a specific date© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN4

Lesson 14Maintaining Policy Reserves

Insurance laws generally require insurers to maintain a certain level of policy reserves.The appointed actuary

reserve valuation:the process of establishing a value for an insurer's required policy reservesHas been duly appointed by an insurer's board of directors to render an official actuarial opinion as to the insurance company's financial conditionIs responsible for certifying that the amount of the insurer's policy reserves is sufficient to meet future obligations© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN5

Lesson 14Other Required Reserves

In addition to policy reserves, other required reserves that insurers typically maintain include

A reserve for policy dividends payableA reserve for premiums paid in advanceA reserve for claims incurred but not yet paidAsset fluctuation reservesdesigned to absorb gains and losses in the insurers' investment portfolioAsset fluctuation reserves are a type of contingency reserve, which is a reserve that consists of surplus held to protect against a specified risk faced by an insurer.© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

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Lesson 14Basic Accounting Equation

The balance sheet is based on the basic accounting equation:Assets = Liabilities + Capital and SurplusAt all times, the amount of the insurer's assets equals the sum of its liabilities and its capital and surplus.The total of the left side alwaysequals the total of the right side.© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN7

Lesson 14Revenues and Expenses

The income that a company generates from its core business operations is called revenue. A life insurer's two main sources of revenue areInsurance and annuity premiumsEarnings from its investmentsexpense:the amount of money that a company spends to support its business operationsInsurer expenses include

Benefit payments to policyowners and beneficiaries (majority)Producer commissionsSalaries and benefitsIT costsTaxes

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Lesson 14Profits and Losses

Profit is the excess of revenues over expenses during a defined period of time. Insurers generally refer to profit as net income.If expenses exceed revenues during a defined period of time, the excess is known as a loss. Insurers generally refer to loss as net loss.income statement:a financial document that reports on an insurer's net income or net loss for a given period by summarizing the company's revenues and expenses during that period © 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN9

Lesson 14Linking the Balance Sheetand Income StatementThe income statement is linked to the balance sheet through the capital and surplus account on the balance sheet. At the end of each accounting period, the net income amount shown on the income statement is added to the amount of capital and surplus on the balance sheet. If the income statement shows a net loss, that amount is subtracted from the capital and surplus account on the balance sheet.

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Lesson 14Linking the Balance Sheetand Income Statement

ExampleAt the beginning of one accounting period, the balance sheet showsAssets of $25,000,000Liabilities of $15,000,000Capital and surplus of $10,000,000At the end of the accounting period, the insurer's income statement shows net income of $500,000.Result At the end of the accounting period, the balance sheet will show an increase in capital and surplus of $500,000, for a total of $10,500,000 in the capital and surplus account. © 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN11

Lesson 14Solvency

statutory solvency: an insurer's ability to maintain capital and surplus at or above the minimum standard of capital and surplus required by lawinsolvency: the inability of an insurer to maintain the legally required minimum standard of capital and surplusAn insurer that holds more risky investments has a higher legal minimum standard of capital and surplus than does a comparable insurer that holds less risky investments. © 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN12

Lesson 14Risks Affecting Solvency

contingency risks: four areas of risk that the U.S. actuarial profession has identified as potentially affecting an insurer's solvencyAsset risk (C-1 risk):risk that the insurer will lose asset value on its investments in assets such as stocks, bonds, mortgages, and real estate for a reason other thana change in market interest rates (Interest rate risks are covered under C-3 risk.)Pricing risk (C-2 risk):risk that the insurer's experience with mortality or expenses will differ significantly from expectations, causing the insurer to lose money on its productsInterest-rate risk (C-3 risk):risk that market interest rates might shift, causing the insurer's assets to lose value and/or its liabilities to gain valueGeneral management risk (C-4 risk):risk of loss resulting from the insurer's ineffective general business practices or environmental factors beyond the company's control© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN13

Lesson 14Examples of Risks

Type of contingency riskAsset risk (C-1)Examples

Stocks owned by insurer lose market valueIssuer of insurer's bonds defaults and does not make scheduled bond paymentsPricing risk (C-2)Life expectancy for a group of life insureds decreases or life expectancy for a group of annuitants increases Product-related expenses increase© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN14

Lesson 14Examples of Risks

Type of contingency riskInterest-rate risk (C-3)Examples

Insurer's bonds lose valuewhen interest rates rise Insurer is unable to earn rate of return on investmentsthat equals or exceeds the interest rates guaranteed in its policiesCustomers withdraw funds and place them with other financial intermediariesInefficient managementGeneral management risk (C-4)Losses from fraud and litigationChanges in insurance regulations or tax laws© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN15

Lesson 14Measuring Solvency

ratio:a comparison of two numeric values that results in a measurement expressed as a percentage or a fractionTo measure risk, insurers usually use capital ratios.capital ratio:a ratio that expresses the relationship between an insurer's capital and surplus and its liabilitiesCapital ratio = Capital and surplusLiabilities© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN16

Lesson 14Risk-Based Capital Ratio Requirements

risk-based capital (RBC) ratio requirement:a requirement that enables state regulators to evaluate the adequacy of an insurer's capital relative to the riskiness of its operationsRegulators analyze RBC calculations and compare them with specified standards. If the ratio results fall below a certain standard, state regulators take action against the insurer.receivership:a process in which the insurance commissioner, acting for a state court, takes control of and administers a financially impaired insurer's assets and liabilitiesrating agency:an organization, owned independently of any insurer or government body, that evaluates the financial condition of insurers and provides information to potential customers and investors in insurance companies© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN17

Lesson 14Measuring Profitability

The return on capital ratio is the ratio that compares some measure of an insurer's earnings during a stated period to some measure of its capital and surplus. This ratio is usually expressed as

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Lesson 14Managing Capital and Surplus

Essential capital and surplus management activities include

Analyze the company's capital and surplus needsMeasure the return expected from a particular use of capital and surplusCompare the projected return on capital with company's hurdle ratethe minimum percentage rate of return on capital that a company must earn for a given level of riskDetermine whether a particular use of capital and surplus has been effective consider abandoning unprofitable investments and lines of business Arrange for financing any required additional capitalinternal financing: involves raising funds through the core business operations of the companyexternal financing: involves raising funds from outside the company© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN19

Lesson 14Managing Cash Flows

cash flow:any movement of cash into or out of an organizationcash inflow:the movement of cash into an organizationAn insurer's cash inflows come from:Revenues generated by product sales and investment incomeSales External financingcash outflow:the movement of cash out of an organizationAn insurer's cash outflows come from:Payment of policy benefits, cash surrenders, and withdrawalsOperating expensesPurchases of assets© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

LESSON FOURTEEN20

Lesson 14Asset/Liability Management (ALM)

Asset/liability management (ALM): the system that coordinates the administration of an insurer's contractual obligations to customers with the administration of the insurer's investment portfolio so as to achieve the best possible financial effectsALM and many other financial management techniques make extensive use of forecasts and simulations.

forecast:a projection or prediction of future values, events, or conditionssimulation:a model used to represent a complex system to study how the system behaves under various circumstancesLESSON FOURTEEN© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

Lesson 14Cash-Flow Testing

cash-flow testing: the process of projecting into a future period the cash flows associated with an insurer's existing business and comparing the timing and amounts of asset and liability cash flows as of a given dateIn the United States, most states have adopted the NAIC's Standard Valuation Law, which requires insurers to test cash flows under several different interest-rate scenarios and identify scenarios that might threaten an insurer's financial position.© 2005 LOMA All Rights ReservedPress “Esc” to return to main menu

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Lesson 14End of Lesson 14

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