Answered: A. Describe the different business…

A. Describe the different business models for Life Insurance Companies as compared to Property & Casualty (P&C) Insurance Companies.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter12: Balanced Scorecard And Other Performance Measures

Section: Chapter Questions

Problem 12MC: The cost of equity is _______. A. the interest associated with debt B. the rate of return required...

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Concept explainers

Types of Insurance Contract

Insurance is a contract wherein an individual or entity gets financial protection from the insurance company for any damages or losses incurred. The individual or entity is called the insured, whereas the insurance company is called the insurer. The insured and the insurer enter a legal contract for a fixed term called the insurance term, and the contract is called an insurance policy.

Question

A. Describe the different business models for Life Insurance Companies as compared to Property & Casualty (P&C) Insurance Companies.

B. Explain why the Investment Portfolio structure (that is, the types of investment securities they hold) is different for a Life Insurance Company as compared to a Property & Casualty Insurance Company.

C. Discuss why Property & Casualty (P&C) Insurers must be concerned about the yield (earnings) on their investment portfolio.

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Explain why the Investment Portfolio structure (that is, the types of investment securities they hold) is different for a Life Insurance Company as compared to a Property & Casualty Insurance Company.
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An investment vehicle, the investee, is created and financed with a debt instrument held by a debt investor and equity instruments held by some other investors. The equity tranche is designed to absorb the first losses and to receive any residual return from the investee. One of the equity investors who hold 30% of the equity is also the asset The investee uses its proceeds to purchase a portfolio of financial assets; thus, exposing them to the credit risk associated with the possible default of principal and interest payments of the assets. The transaction is marketed to the debt investor as an investment. Such investment has minimal exposure to the credit risk associated with the possible default of the assets in the portfolio. It is because of the nature of the assets and of the equity tranche. The returns of the investee are significantly affected by the management of the investee’s asset portfolio. Managing the asset portfolio includes decisions about the selection,…
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