MANTUANO, Donita Marie B.

BSBA-FM2A

INSURAN
CE
Insurance COMPAN
company is a financial institution
which UNDERWRITES the risk of loss of, or damage to, personal
Y
and business assets and life and limb (life and accident
insurance). Some companies specialize in one or other of these
areas, but others operate in both sectors. Moreover, insurance
companies issue insurance policies to cover a variety of
contingencies (fire, flooding, breakage, theft, death, etc.), involving
potential financial loss to policy holders or their dependents in
return for regular payments of a premium. An insurance company
operates by pooling risk among a large number of policy holders;
premiums are based on the probability of a particular event
occurring and the average financial loss associated with each.
This is done by the company's actuarial staff using statistical
techniques to analyse past claims. For very large insurance risks
an insurance company may resort to reinsurance sharing the
insurance premium with other insurers in proportion to the share of
potential claim which they are prepared to accept. In addition,
many insurance companies offer contractual savings schemes .
Furthermore, insurance companies use the premiums they
receive not only to settle day-to-day claims but also to generate
additional income and profit by investing their funds in FINANCIAL
SECURITIES. Their portfolios attempt to maintain a careful
balance between immediate liquidity needs and longer-term
investment returns. Life insurance business, in particular, because
of its long-term contractual nature, is especially conducive to
offering long-term investment returns to policy holders as well as
the insurance company. With profit life insurance policies are now
commonplace, as are unit-linked policies which are directly related
to fund performance. Life insurance policies linked to the provision
of MORTGAGE finance for house purchase are another
innovation.