Finite Risk Insurance
It appears that one of the major issues surrounding the AIG scandal is the accounting and business transactions involving finite risk insurance. Liberty Mutual provides a reasonable overview of finite risk insurance here a brief section:
Finite risk insurance is based on the principles of financial reinsurance. It seeks to transfer the financial responsibilities associated with either known or unknown losses paid over a specific period of time. A company can purchase a finite risk policy to transfer the liabilities of future payments for losses to an insurance company.
Some of the statements in the article are a bit sketchy such as this one:
During the 1980s, changes in the property/casualty marketplace caused companies to increase their risk retentions. This generally took the forms of larger deductibles and self-insurance. As a result, many companies began to accumulate liabilities for uninsured losses on their balance sheets.
Now, after years of retaining these losses, companies are carrying a sizable number of open claims and their accompanying liabilities on their books. These mounting liabilities on balance sheets can cause problems for companies. For instance, they could depress a company's earnings or affect its ability to obtain credit. Finite risk insurance has emerged as a practical and effective tool to help companies solve the problem of mounting liabilities for a set cost during a set time.
I am not certain how the mounting liabilities could affect earnings, it seems that the hit to earnings would have already taken place?
For another perspective on Finite Risk Insurance there is a good article in The Regulator which is pu out by the Insurance Regulatory Examiners Society. The article does a good job of explaining the product and also discussing the 10/10 rule of risk transfer, i.e. to be an isnurance product there has to be a chance that 10% chance that 10% of the premium is at risk.
After reading the article you may wonder whtat to believe about earnings.
Finite risk insurance is based on the principles of financial reinsurance. It seeks to transfer the financial responsibilities associated with either known or unknown losses paid over a specific period of time. A company can purchase a finite risk policy to transfer the liabilities of future payments for losses to an insurance company.Finite risk insurance is based on the principles of financial reinsurance. It seeks to transfer the financial responsibilities associated with either known or unknown losses paid over a specific period of time. A company can purchase a finite risk policy to transfer the liabilities of future payments for losses to an insurance compan
Finite risk insurance is based on the principles of financial reinsurance. It seeks to transfer the financial responsibilities associated with either known or unknown losses paid over a specific period of time. A company can purchase a finite risk policy to transfer the liabilities of future payments for losses to an insurance company.
Some of the statements in the article are a bit sketchy such as this one:
During the 1980s, changes in the property/casualty marketplace caused companies to increase their risk retentions. This generally took the forms of larger deductibles and self-insurance. As a result, many companies began to accumulate liabilities for uninsured losses on their balance sheets.
Now, after years of retaining these losses, companies are carrying a sizable number of open claims and their accompanying liabilities on their books. These mounting liabilities on balance sheets can cause problems for companies. For instance, they could depress a company's earnings or affect its ability to obtain credit. Finite risk insurance has emerged as a practical and effective tool to help companies solve the problem of mounting liabilities for a set cost during a set time.
I am not certain how the mounting liabilities could affect earnings, it seems that the hit to earnings would have already taken place?
For another perspective on Finite Risk Insurance there is a good article in The Regulator which is pu out by the Insurance Regulatory Examiners Society. The article does a good job of explaining the product and also discussing the 10/10 rule of risk transfer, i.e. to be an isnurance product there has to be a chance that 10% chance that 10% of the premium is at risk.
After reading the article you may wonder whtat to believe about earnings.
Finite risk insurance is based on the principles of financial reinsurance. It seeks to transfer the financial responsibilities associated with either known or unknown losses paid over a specific period of time. A company can purchase a finite risk policy to transfer the liabilities of future payments for losses to an insurance company.Finite risk insurance is based on the principles of financial reinsurance. It seeks to transfer the financial responsibilities associated with either known or unknown losses paid over a specific period of time. A company can purchase a finite risk policy to transfer the liabilities of future payments for losses to an insurance compan
posted by Don Pagach at 10:25 AM
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