Saunders

1
What is robbing a bank compared with founding a
bank?

• Bertolt Brecht

2
Insurance Companies

• Life Insurance
• Policies pool risks associated with death or
  retirement.
• Property-Casualty Insurance
• Policies pool risks associated with loss of real
  assets, personal property and exposure to legal
  liability.

3
Life Insurance Companies

• Ordinary Life Ins. Policies (62 of US mkt)
• Marketed on an individual basis
• Group Life (32)
• A large no. of insured persons are covered under
  a single policy to reduce costs eg., employees.
• Industrial Life (1)
• Direct marketing/weekly payments
• Credit Life (6)
• Tied to mortgages and other loans.

4
Ordinary Life Insurance Policies

• Term Life
• Pure insurance/no savings attached.
• Whole Life
• Level premiums/face value received on death.
• Endowment Life
• Term if death occurs during endowment period,
  otherwise whole life (receives face value)
• Variable Life
• Fixed premiums invested in portfolio so payout is
  determined by returns.
• Universal Life Variable Universal Life
• Both premium amounts maturity can be changed.

5
Shifting Buying PatternsWall Street Journal,
9/18/02

• Annualized Premium Market Share

6
Property-Casualty Insurance Policies

• Fire insurance
• Homeowners insurance
• Commercial multiple peril insurance
• Automobile liability physical damage ins.
• Liability insurance
• Provides protection against nonauto-related legal
  liability. Can include operational risk events
  such as employee fraud or negligence.
• Long-tail loss. HFLS vs. LFHS risk events.

7
Profitability Analysis

• Loss Ratio Losses/premiums
• Loss adjustment expenses (LAE) costs of
  settling claims.
• Expense RatioOperating expenses/premiums
• Dividend RatioDividends paid/premiums
• Combined RatioLoss RatioExpense Ratio
  Dividend Ratio
• Operating RatioCombined ratio Investment yield
  on company portfolio
• Overall profitability100-operating ratio

8
Securities Firms and Investment Banks

• Broker-dealers
• Assist in trading of existing securities
  (secondary securities).
• Discount brokers vs. market makers.
• Underwriting
• Issuance of new securities (primary securities)
• Shelf Registration
• IPOs
• Private Placements

9
Mutual Funds

• Open-ended priced at NAV
• Closed-End Investment companies
• Fund Objectives
• Equity Index Funds
• Debt
• Hybrid
• Money Market
• REITs (closed end)
• Hedge Funds (closed end)

10
Finance Companies

• Sales Finance Cos.
• Lend to retail customers (ex. GMAC, Ford Motor
  Credit, Sears Roebuck Acceptance Corp.)
• Personal Credit Institutions
• Installment loans to consumers (ex.Household
  Finance)
• Business Credit Institutions
• Business financing through equipment leasing and
  factoring (purchasing accts rec) (ex. CIT Group,
  Heller Financial)
• Subprime Lenders