Assignment

When appropriate, provide a citation and a copy of your source.

1. a. Describe the basic characteristics of stock insurers.
b. Describe the basic features of mutual insurers.
c. Identify the major types of mutual insurers.

2. Property and casualty insurance can be marketed under different marketing systems. Compare the independent agency system with the exclusive agency system with respect to each of the following:

a. Number of insurers represented by the agent
b. Ownership of policy expirations
c. Differences in the payment of commissions

3. You have just learned that "the number of life insurers has declined sharply during the past decade because of the increase in company mergers and acquisitions, demutualization of insurers, and formation of mutual holding companies."

a. How many life insurers are there currently in the U.S.? How many life insurance companies were there in 1970? Provide a citation and a copy of your source.

b. Why have mergers and acquisitions among insurers increased over time?

c. What is the meaning of demutualization?

d. Briefly explain the advantages of demutualization of a mutual life insurer.

e. What is a mutual holding company?

f. What are the advantages of a mutual holding company to an insurer?

4. Commercial Insurance is a large stock property and liability insurer that specializes in the writing of commercial lines of insurance. The board of directors has appointed a committee to determine the feasibility of forming a new subsidiary insurer that would sell only personal lines of insurance, primarily homeowners and auto insurance. The new insurance company would have to meet certain management objectives. One member of the board of directors believes the new insurer rather than as a stock insurer. Assume you are an insurance consultant who is asked to serve on the committee. To what extent, if any, would each of the following objectives of the board of directors be met by formation of a mutual property and casualty insurer? Treat each objective separately.

a. Commercial Insurance must legally own the new insurer.

b. The new insurer should be able to sell common stock periodically in order to raise capital and expand into new markets.

c. The policies sold should pay dividends to the policyholders.

d. The new insurer should be licensed to do business in all states.