Insurance Companies and Pension Plans (FRM Part 1 2023 – Book 3 – Chapter 2)

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After completing this reading, you should be able to:
- Describe the key features of the various categories of insurance companies and identify the risks facing insurance companies.
- Describe the use of mortality tables and calculate the premium payment for a policyholder.
- Calculate and interpret loss ratio, expense ratio, combined ratio, and operating ratio for a property-casualty insurance company.
- Describe moral hazard and adverse selection risks facing insurance companies, provide examples of each, and describe how to overcome the problems.
- Distinguish between mortality risk and longevity risk and describe how to hedge these risks.
- Evaluate the capital requirements for life insurance and property-casualty insurance companies.
- Compare the guaranty system and the regulatory requirements for insurance companies with those for banks.
- Describe a defined benefit plan and a defined contribution plan for a pension fund and explain the differences between them.