MANTUANO, Donita Marie B.

BSBA-FM2A

An insurance company is a financial institution that

UNDERWRITES the danger of personal and business assets, as
well as life and limb, being lost or damaged (life and accident
insurance). Some businesses expertise in one or the other of
these areas, while others work in both. Furthermore, insurance
firms issue policies to cover a number of contingencies (fire,
flooding, breakage, theft, death, and so on) that may result in
financial loss to policy holders or their dependents in exchange for
regular premium payments. An insurance company works by
spreading risk among a large number of policyholders; premiums
are calculated based on the probability of a specific event
occurring and the average financial loss associated with each. The
company's actuarial staff does this by analyzing historical claims
using statistical approaches. For a huge insurance risks, an
insurer may use reinsurance, which involves splitting the
insurance premium with other insurers in proportion to the
percentage of the potential claim that they are willing to accept.
Furthermore, several insurance firms provide contractual savings
plans.
Insurance companies invest the premiums they earn in
FINANCIAL SECURITIES to produce additional income and profit
in addition to pay day-to-day claims. Their portfolios aim to
establish a careful ratio between short-term liquidity need and
long-term investment returns. Because of its long-term contractual
character, the life insurance sector, in particular, is well suited to
provide long-term investment returns to both policyholders and the
insurance firm. Unit-linked policies, which are directly connected to
fund performances, and with profit life insurance policies are now
commonplace. Another innovation is life insurance plans tied to
the supply of MORTGAGE credit for the purchase of a home.