【正文】 ash receipts are known with considerable accuracy, and their cash outflows are not difficult to forecast. ? However, the pension fund industry is closely regulated in all its activities. Pension Funds Source: Board of Governors of the Federal Reserve System 17 16 Pension Funds Source: Board of Governors of the Federal Reserve System 17 17 ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 17 18 Pension Funds ? There appear to be serious problems ahead for both the growth and stability of pension plans. ? The rising proportion of pension beneficiaries to working contributors, related to the aging of the population. ? The increasing cost of maintaining pension programs, especially defined benefit plans. ? The rising cost of government regulation with respect to reporting requirements and employee rights. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 17 19 Life Insurance Companies ? Life insurance panies offer their customers a hedge against the risk of earnings losses that often follow death, disability, or retirement. ? Policyholders receive risk protection in return for their payment of policy premiums. ? Additional funds to cover claims and expenses are provided by the earnings from the investments made by the insurance panies. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 17 20 Life Insurance Companies ? The principal kinds of policies sold by life insurance panies include ordinary or whole life, term life, endowment, group life, industrial life, universal life, variable life, adjustable life, and credit life insurance. ? Many policies bine financial protection against death, disability, and retirement with savings plans to help the policyholder prepare for some important future financial need. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 17 21 Life Insurance Companies in the . Data Source: American Council of Life Insurers ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 17 22 Life Insurance Companies ? The insurance business is founded upon the law of large numbers – a risk that is not predictable for one person can be forecast accurately for a sufficiently large group. ? So, life insurers invest the bulk of their funds in longterm securities, and frequently follow a “buy and hold” strategy. They generally pursue ine certainty and safety of principal in their investments. Life Insurance Companies Source: Board of Governors of the Federal Reserve System 17 23 ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 17 24 Life Insurance Companies ? The majority of the close to 1,700 . life insurance panies are stockholderowned corporations. The rest are mutuals that issue ownership shares to their policyholders. ? The population reached a high of almost 2,350 in 1988 and has been falling ever since. ? Most notably, the largest life insurers today are converging with other financial institutions to form huge multiproduct businesses. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 17 25 Life Insurance Companies ? Life insurers are under increasing pressure to develop new services. ? Among the most important recent innovative services are universal and adjustable life insurance, variable premium and variable life insurance, mutual funds, tax shelters, venture capital loans, guaranteed investment contracts, corporate cash management systems, and deferred annuities. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 17 26 PropertyCasualty (P/C) Insurance Companies ? Propertycasualty (P/C) insurers (insurance supermarkets) offer protection against events like fire, theft, bad weather, and negligence that result in injury to persons or property. ? Traditional P/C insurance covers automobile, fire, marine, personal liability, and property. ? Many P/C insurers have also branched into health and medical insurance, clashing headon with life insurers. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 17 27 PropertyCasualty (P/C) Insurance Companies ? There are nearly 3,000 P/C panies in the ., of which about three quarters are stockholderowned, while the rest are mutuals. ? P/C insurance is a riskier business than life insurance – P/C claims are less predictable and inflation has a potent impact. ? Moreover, the P/C risk patterns appear to be changing. For example, there has been a rapid rise in product liability claims. PropertyCasualty (P/C) Insurance Companies Source: Board of Governors of the Federal Reserve System 17 28 ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 17 29 PropertyCasualty (P/C) Insurance Companies ? Like life insurance firms, P/C insurers plan to break even on their insurance product lines and earn most of their return from their investments. ? However, achieving the breakeven point is difficult. In fact, P/C insurers have experienced billions of dollars in underwriting losses in recent years. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill / Irwin 17 30 PropertyCasualty (P/C) Insurance Companies ? The earnings and sales revenue of the P/C insurance industry reflect the ups and downs of the business cycle. ? Moreover, inflation pushes up the cost of claims, while intense petition holds premium rates down. ? To improve their future situation, P/C insurers must bee more innovative in developing new services. ? 2020 by The McGrawHill Companies, Inc. All rights reserved. McGraw Hill /