BU353 Chapter Notes - Chapter 8: Moral Hazard, Financial Statement, Enterprise Risk Management
Document Summary
With a typical insurance policy, the policyholder pas a fixed premium to the insurer and the insurer promises to pay losses or benefits as provided under the terms of the policy. Economic capital the difference between the market value of assets and the market value of liabilities. The market value of assets reflects the market value of the insurer"s stocks, bonds, real estate, cash and the like. The market value of liabilities equals the present value of the payments the insurer has promised to make in the future for policies already sold. Mutual insurer incorporated insurance companies that usually charge fixed, advance premiums to policyholders. Because policyholders usually cannot be assessed to pay unexpectedly high claim costs, their liability for the insurer"s claim costs is limited to what they originally paid in premiums. Reciprocal managed by an entity known as an attorney in fact, which is in essence a management company.
