Assessment of Financial Statements

1501 WordsJul 28, 20137 Pages
ASSESSMENT OF FINANCIAL STATEMENTS Assessment of Financial Statements Judith A Vicks FIN7014-8: Managing Financial Institutions Dr. Ekanayake: Northcentral University June 23, 2013 ASSESSMENT OF FINANCIAL STATEMENTS Abstract It is important to understand the differences in how earnings and liabilities are generated or reported for different financial institutions. This paper will describe key points regarding the balance sheets of different financial institutions. Commercial Banks must mitigate interest rate and default risk, however, when a major financial crisis erupts they must have enough reserves on hand to cover their liabilities. Insurance companies use the float from the premiums paid in to invest their…show more content…
In the insurance industry, the insurance company delivers an insurance policy to the insured which describes the circumstances that the insurance company will pay out to the policy holder in case of loss. Insurance is typically defined as the transfer agent of risk from one entity to another in exchange for a premium or payment. Insurance companies pool their premiums together to invest them and make money until the policy is paid out. The float or the ASSESSMENT OF FINANCIAL STATEMENTS unused portion of the money received from policy holders in the way of premiums is what the insurance companies use to mitigate their risk and invest their money. The profit could be described as the earned premium plus the investment income less incurred losses and less underwriting expenses. In conclusion the goal of the insurance company is to collect more premium and investment income than is paid out to policy holders. Insurance companies may have less investment income during economic downturns or catastrophic activity and must struggle to be competitive with their premiums and make a profit at the same time. Ruquet (2012) Lloyd’s says its 2012 first-half net income more than doubled compared to last year because of benign catastrophe activity, but admits that loss events in the second half of the year could still weigh on
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