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C) Insurance panies receive funds from premiums. They use their funds to buy more liquid assets because they have more possibility of of loss if major disasters occur. ? Insurance panies are experts in determining the amount of premiums (liabilities) pared with asset investments. ? Skilful in addressing problems of adverse selection and moral hazard. 。C severely affected by SARS, power outage (ON), forest fires (BC), mad cow disease (AB),… 19 ? Partial Balance Sheet (C$ billions of dollars) ? Assets 1998 Q32021 ? Bonds and debentures $ (%) $ (%) Total $ (100%) $49,32 (100% ) ? Liabilities 1998 Q32021 ? Unpaid claims and adjustment expenses $ (%) $ (%) ? Unearned premiums* $ (%) $ (%) ? Equity $ (%) $ (%) Total $ (100%) $49,32 (100%) *Unearned premiums representing the unexpired part of policies ? Pamp。 15% of total premium is from foreign Insurance firms. ? Liabilities: Actuarial liabilities*(%) ? Equity capital is % of total assets (Banks is %) ? Segregated funds amount to % of total assets Segregated funds are variable life policy assets in which claims are based on the returns of a pool of segregated securities (guarantying 75100 of initial investment depending on the policy). *Actuarial liabilities: Expected payment mitments on existing policy contracts. 17 6. Property and Casualty Insurance Companies ? Property insurance cover losses of real and personal property (., theft, fire, accidents, natural disasters, man made disasters) ? Casualty (liability) insurance protects against legal liability exposures (., medical malpractice) 18 ? Quick Facts 230 federally registered Pamp。1 Ch 3 Insurance Companies (Based on Saunders et al, 2021) Outline 1. Insurance Companies: Introduction Differences and monalities with depository institutions 2. Quick Facts about Insurance Companies in Canada 3. Life Insurance Companies Types of life insurance Other financial services Health Insurance 4. Ownership 5. Balance Sheet 6. Property and Casualty Insurance Companies 7. How do Insurance panies deal with adverse selection and moral hazard? 8. Conclusions 2 1. Introduction Why do people buy insurance? A: ? Insurance