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MTHEL 131 (105)
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MTHEL 131 Class Note Lecture 2

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University of Waterloo
Mathematics Electives
David Kohler

[Sept. 21, Lecture 2] 1 Profile of Life & Health Insurance Industry 1. It offers wild range financial security produces Under the insurance products umbrella: → Life insurance (main, primary) → Disability income products → Health insurance: dental plan, drug coverage → Critical illness insurance → Long term care insurance Under the investment products umbrella: → Investment products → Financial products - Mutual fund: diversify $$ - Segregated fund: only insurance can offer - Small investors get together, and can have a mutual fund → Mortgage → Tax free saving account 2. Protests for more than 26,000,000 Canadians. → Life & Health Insurance Industry pays out $1.1 billion in benefits to Canadians every WEEK! → Nearly $60 billion a year → 90% of these payments to living benefit: retired, disability income benefit payable, health care cost → 10% to death benefit 3. Play important role in meeting financial needs in different levels government in Canada → Military → Development project (rood, infrastructure, school, prison, etc.) * How can the $$ comes up with the rest beside taxes? → Issue government bond (every week) How to compete with other governments (if not rank higher level to repay)? → Offer higher industry → Cheap * Role of Life & Health Insurance Industry: buying bonds → Put premium into investment → Big individual buyer → Government bonds represents 18% of Life & Health Insurance Industry investment in [Sept. 21, Lecture 2] 2 2008; $75 billion invested in government bond Greek situation: sell new bonds to pay old bonds (with high sell) → Government is not the only people to raise money or finance projects through bonds - Larger corporation financing from issuing bonds: ex. Loblaws, Canadian tire - Pay by 6% from corporate bond compares to 2% or 3% of government bond → 40% of all investment of Life & Health Insurance Industry are from corporate bonds with $169 billion → The justification of choosing corporate bond: 1. Risk return trade off 2.Ability of return is very solid → 19% in mutual fund → 16% in mortgage of malls → 5% or 6% in miscellany type investment 4. It is international respected through its financial security → Very financially stable st → Since the 1 insurance company was formed, never $1 benefit never gone non pay 5. It is internationally successful → In 20 different countries in the world → 2 leading Canadian companies: 1. Manulife (in HK 1898/1899) 2. Sun Life [well known inAsia, Australia, USA, etc.] → Half of the industry’s premium income comes from outside of Canada: 2008-&72 billion 6. Highly competitive → Canadian Life & Health Insurance Industry firms have 87% Canadian market share 7. Contribute to small business → 1. Source of financial (small business needs mortgage, provided by Life & Health Insurance Industry) → 2.Aongoing challenge for small business owner to attract and maintain employees * How to keep them? – offer them benefit: group plan, life insurance, drug coverage, etc. → 3. Life & Health Insurance Industry advisors can provide counseling to provide consulting services [Sept. 21, Lecture 2] 3 8. It is a major employer → More than 132,000 employees across Canada → Over 10,000 full time employee in Waterloo region 2 main types of Life Insurance * Individual (coverage) vs. Group (coverage) → Individual (coverage): - Between insurer and insured (e.g. Sun Life and me) -Average individual coverage: $165,000 - 2 types of individual coverage: term or permanent → Group (coverage): - Covered by at work, between insured and employed - Get group coverage from 3 main sources: 1. from work/an employer group (62% group insurance for employers) 2. creditor (31%, credit card) 3. association (7%) - Less protection than individual coverage - Has risk of not paying off -Average of group coverage $49,000 * When the application is made, the insured has to decide whether they want to accept the individual applicant (underwriting) Market share by company (It measured by how much premiums coming in compare to the whole Canadian market place premium.) - Sun Life: 16.3% of Canadian market share - Manulife: 17.2% - Great West Life (bought London Life, Canada Life): 23.5% In Quebec: - Industrial Alliance: 7.5% - Desjardins Financial: 6.1% - Total: 70.6% owned by 5 companies - 115 companies fight over other 30% - Banks want to g
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