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MTHEL 131 (32)

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Mathematics Electives
David Kohler

MTHEL131 Textbook notes – Life and Health Insurance 13e (Black and Skipper) Chapter 23 Erin Edward Life insurance company organization and management  Majority of worldwide life and health insurance is issued by commercial insurance companies  Companies are commonly classified as stock or mutual companies  Worldwide stock insurers outnumber mutual  The shift from mutual to stock changes the industry’s ability to respond to the deregulation of the financial services marketplace Organizational form in life and health insurers Principle agent relationships  Separation of control and ownership leads to conflict between principle agent relationships  Life insurance industry involves three parties: o Company owners o Company managers o Policy owners  Several control mechanisms are available to help assure that management actions will not impose too much cost onto shareholders o Board of directors o Competition among managers seeking executive positions o Threat of outside takeover Life insurance company formation  Form of an organization should provide permanence and a high degree of security of payment (corporation meets these requirements) Organizational Structure Holding Companies  Improve earnings  Long-term growth possibilities through diversification  Financial organizations that own or control one or more insurers, broker-dealer organizations, investment companies, consumer finance companies, and other financial service corporations  Formed by stock company: upstream holding company o Sits at the top of the intercorporate structure o Owned by stock holders  For med by mutual company: downstream holding company o Sits in the middle of the intercorporate structure o Owned by the mutual company  Distinction presents a few problems: o Parent mutual is directly subject to insurance regulations o Downstream has been a viable device only is parent has a strong surplus position (limited ability to acquire other
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