1. “What is robbing a bank compared with founding a bank?”
Bertolt Brecht
Saunders & Cornett, Financial Institutions Management, 4th ed.

2. Saunders & Cornett, Financial Institutions Management, 4th ed.
Insurance Companies
Life Insurance
Policies pool risks associated with death or retirement.
Property-Casualty Insurance
Policies pool risks associated with loss of real assets, personal property and exposure to legal liability.
Saunders & Cornett, Financial Institutions Management, 4th ed.

3. Life Insurance Companies
Ordinary Life Ins. Policies (62% of US mkt)
Marketed on an individual basis
Group Life (32%)
A large no. of insured persons are covered under a single policy to reduce costs: eg., employees.
Industrial Life (1%)
Direct marketing/weekly payments
Credit Life (6%)
Tied to mortgages and other loans.
Saunders & Cornett, Financial Institutions Management, 4th ed.

4. Ordinary Life Insurance Policies
Term Life
Pure insurance/no savings attached.
Whole Life
Level premiums/face value received on death.
Endowment Life
Term if death occurs during endowment period, otherwise whole life (receives face value)
Variable Life
Fixed premiums invested in portfolio so payout is determined by returns.
Universal Life & Variable Universal Life
Both premium amounts & maturity can be changed.
Saunders & Cornett, Financial Institutions Management, 4th ed.

5. Shifting Buying Patterns Wall Street Journal, 9/18/02
Annualized Premium Market Share
2000
2001
Up to 6/2002
Term
22%
20%
21%
Universal Life
17%
25%
Variable Life
37%
33%
26%
Whole Life
24%
27%
Saunders & Cornett, Financial Institutions Management, 4th ed.

6. Property-Casualty Insurance Policies
Fire insurance
Homeowners insurance
Commercial multiple peril insurance
Automobile liability & physical damage ins.
Liability insurance
Provides protection against nonauto-related legal liability. Can include operational risk events such as employee fraud or negligence.
Long-tail loss. HFLS vs. LFHS risk events.
Saunders & Cornett, Financial Institutions Management, 4th ed.

7. Profitability Analysis
Loss Ratio = Losses/premiums
Loss adjustment expenses (LAE) = costs of settling claims.
Expense Ratio=Operating expenses/premiums
Dividend Ratio=Dividends paid/premiums
Combined Ratio=Loss Ratio+Expense Ratio + Dividend Ratio
Operating Ratio=Combined ratio – Investment yield on company portfolio
Overall profitability=100-operating ratio
Saunders & Cornett, Financial Institutions Management, 4th ed.

8. Securities Firms and Investment Banks
Broker-dealers
Assist in trading of existing securities (secondary securities).
Discount brokers vs. market makers.
Underwriting
Issuance of new securities (primary securities)
Shelf Registration
IPOs
Private Placements
Saunders & Cornett, Financial Institutions Management, 4th ed.

9. Saunders & Cornett, Financial Institutions Management, 4th ed.
Mutual Funds
Open-ended – priced at NAV
Closed-End Investment companies
Fund Objectives
Equity: Index Funds
Debt
Hybrid
Money Market
REITs (closed end)
Hedge Funds (closed end)
Saunders & Cornett, Financial Institutions Management, 4th ed.

10. Saunders & Cornett, Financial Institutions Management, 4th ed.
Finance Companies
Sales Finance Cos.
Lend to retail customers (ex. GMAC, Ford Motor Credit, Sears Roebuck Acceptance Corp.)
Personal Credit Institutions
Installment loans to consumers (ex.Household Finance)
Business Credit Institutions
Business financing through equipment leasing and factoring (purchasing accts rec) (ex. CIT Group, Heller Financial)
Subprime Lenders
Saunders & Cornett, Financial Institutions Management, 4th ed.