Risk Securitization
The long-awaited boom in insurance-backed investment known as "risk securitization" may soon become a reality in U.S.A and in India as we move towards fully liberalized markets as a flurry of important transactions occurred in 1997 and ten or more such deals are expected this year
The idea of offering investors the chance to buy into investments based on insurance risk has been explored since the beginning of the decade. The Chicago Board of Trade began taking options on risk futures in 1992, and a competing exchange has since opened in Bermuda. In 1994, large property/casualty mutual insurers began offering contingent credit facilities--bank-type facilities in which a company could borrow in the event of unusual catastrophic losses. Those were followed by surplus notes and "act of God" bonds-company-underwritten securities aimed at providing a surplus cushion against unusual losses.
But the main focus has been to lure institutional investors, such as pension funds, life insurers and large investment pools, that typically prefer fixed-income products.
While several offerings announced in 1996 raised investor awareness about risk securitization, but they were later withdrawn. Then, toward the end of the year and into 1997, five major offerings made it to market and may have given risk-backed securities the credibility they require.
The successful offerings each targeted different investor groups and showed new possibilities for securitized insurance risk. For some insurers, however, taking the trouble to securitize now will build a track record that they can leverage if coverage should suddenly become more difficult to obtain.
Insuring asset-backed securities will grow into a more sizable business for financial guarantors. Faced with a saturated municipal bond market, financial guarantors in U.S.A are focusing these days on new growth opportunities in the securities market. What was once a backwater of the insurance industry, with just a few companies insuring the 'low' to 'no' risk of municipal bonds defaulting, has moved into the more sophisticated area of insuring capital-market securities, such as mortgage-backed and asset-backed securities, both in the U.S. and other countries.
New Discounts Make Auto Insurance Cheap
"Good Student Discount."
Its not known if they have statistics to back up "good students" having fewer accidents but definitely the do-gooders like this because they think it will encourage kids to get better grades rather than overhauling our broken education system.
How It Works
Be a full-time high school or college student in the upper 20 percent of his/her class, or maintain a "B" or better average, or maintain a "3" or higher on a 1-to-4 point system, or on a Dean's List or Honor Roll. This certification of grades is for the school semester immediately preceeding the anniversary date of the policy.
"Diverse households" discount:Here is how one can qualify for this discount
Be a widow or widower with custody of resident children aged 18 or younger, divorced or legally separated with custody of resident children, or a same-sex or opposite-sex domestic partnership.
News Media Liability policy
To provide comprehensive coverage for news organizations combined with several policy enhancements.
Specifically, the policy departs from the named perils format to include, instead, coverage for risks arising out of the core functions of new organizations -- gathering information and communicating that information to the public. The policy also includes several enhancements that allow it to be tailored to the organization's needs, including subpoena protection, and multimedia coverage for media conglomerates.
Pension Funds: The Role of Insurance Companies
Role and Importance Of Pension Funds
Pension funds have two important roles to play-
• meeting a key social need and
• providing a pool of investible surplus
The break up of the extended family and the increased mobility of the workers has led to the burden of serving the needs of the aged fall on the society as a whole.
State Provision
The particular choice will depend on the views and the expectations of the of the electorate and the society at large. There are different approaches in different countries:
• Sufficiently generous as in Italy
• Relatively modest as in the US
• A middle approach as in UK
A problem with excessive state provision is that it leads to an old age crisis when the ratio of workers to retires is falling.
Charitable Organisations
In poorer countries the economic realities are such that the state providing for the elderly is not practically feasibile and they have to depend on charity.
Private Provision
This approach successfully deals with the problems of the two approaches mentioned above. The Project Oasis Committee of February 1999, identifies that the role of the government is to create infrastructure in order to enable the individual citizens to prepare for old age throughout their time oon the labour force.
Overview of The Pension System
The three pillars of the pension provision are the public pension scheme, private occupational pension schemes and private individual schemes offered by the institutional providers, usually the life insurance companies.
Public Pension Schemes
These schemes are usually provided by the state and are usually compulsory. Besides, they are guaranteed and paid by the state out of th current government’s revenue.
Private Occupational Pension Schemes
These are provided by the employers and the trade unions across whole industry. The state is not involved as a provider but has the role of an enabler and regulator.
Life insurance companies have been involved in both these classes of schemes from the earliest development of such schemes. LIC offers products that meet the statutory liabilities of group gratuity and employer provident funds. The group superannuation plan meets the needs of the employer wishing to provide benefits in addition to the statutory minimum.
Their involvement spans the following areas:
• Product design and packaging
• Distribution
• Record keeping and benefit calculations
• Investment of funds
• Documentation and approval
• Actuarial services
• Payment of benefits
• Provision of risk benefits, typically life and disability insurance.
• Trusteeship
• Private individual schemes
These contributions which are almost exclusively defined are usually arranged by the individuals through life insurance companies. Typically purchasers would be employees who are not members of occupational schemes but those wishing to augment their employer scheme and the self employed.
This area of business as with the occupational schemes is the natural strength of insurance companies. ‘Jeevan Suraksha’ is a prime example of such a product, offering individuals the opportunity to make provisions for their retirement.
Governments Role
Governments keen to reduce the dependency on the state via private pension provisions. They have a choice between using compulsion and incentives. Most of the governments choose the later method. Tax relief is granted to the pension plans and is extremely generous, reflecting the value that the government and the society at large place on the provision of retirement benefit. Tax treatment of the benefits varies by country and by benefit.
In India, the proceeds of the gratuity and provident fund are tax free in the hands of the members. In the UK, a certain amount of the proceeds can be taken as tax-free lump sum and remainder as taxable income. Benefits due on withdrawal from schemes are generally taxed unless they are transferred to another scheme or approved pension plan.
Dave Committee Recommendations
The Dave Committee has made the following recommendations as far as the fiscal changes go:
• An increase on tax relief on contributions to the public provident fund
• A tax on early withdrawals which will provide an incentive to leave the funds in place until retirement and reduce dissipation
• A tax on cash withdrawals at or after the retirement in order to encourage the members to purchase annuities.
Investment Norms
• Separation of assets: It is important that the assets of the pension fund schemes are separated from those of the sponsoring body, be it the employer or an individual. This in order to protect the retirement benefits of the member from the vagaries of the cash flows of business fortunes of the sponsor.
• Security of assets: Legislation will often, as in India restrict investment of pension fund assets to home country. This is generally rooted in a desire to retain a key source of long term capital within the domestic economy but has the additional merit from the point of view of members’
security in that assets are maintained in the same currency as the liabilities.
• Matching of assets and liabilities: The Dave Committee recommends a widening of the range of permissible assets for pension funds to include corporate debt and equity. These reforms are fairly modest and should be seen as the first step of liberalisation rather than the end of the road.
• Regulation of pension funds: There must be simplicity if the individuals are to take greater responsibility for their own retirement income planning. An ally of simplicity is education – a rational choice by employers and individual requires good quality information. Regulation can help in this regard by stipulating that the information must be given to the members or prospective purchasers.
The long-awaited boom in insurance-backed investment known as "risk securitization" may soon become a reality in U.S.A and in India as we move towards fully liberalized markets as a flurry of important transactions occurred in 1997 and ten or more such deals are expected this year
The idea of offering investors the chance to buy into investments based on insurance risk has been explored since the beginning of the decade. The Chicago Board of Trade began taking options on risk futures in 1992, and a competing exchange has since opened in Bermuda. In 1994, large property/casualty mutual insurers began offering contingent credit facilities--bank-type facilities in which a company could borrow in the event of unusual catastrophic losses. Those were followed by surplus notes and "act of God" bonds-company-underwritten securities aimed at providing a surplus cushion against unusual losses.
But the main focus has been to lure institutional investors, such as pension funds, life insurers and large investment pools, that typically prefer fixed-income products.
While several offerings announced in 1996 raised investor awareness about risk securitization, but they were later withdrawn. Then, toward the end of the year and into 1997, five major offerings made it to market and may have given risk-backed securities the credibility they require.
The successful offerings each targeted different investor groups and showed new possibilities for securitized insurance risk. For some insurers, however, taking the trouble to securitize now will build a track record that they can leverage if coverage should suddenly become more difficult to obtain.
Insuring asset-backed securities will grow into a more sizable business for financial guarantors. Faced with a saturated municipal bond market, financial guarantors in U.S.A are focusing these days on new growth opportunities in the securities market. What was once a backwater of the insurance industry, with just a few companies insuring the 'low' to 'no' risk of municipal bonds defaulting, has moved into the more sophisticated area of insuring capital-market securities, such as mortgage-backed and asset-backed securities, both in the U.S. and other countries.
New Discounts Make Auto Insurance Cheap
"Good Student Discount."
Its not known if they have statistics to back up "good students" having fewer accidents but definitely the do-gooders like this because they think it will encourage kids to get better grades rather than overhauling our broken education system.
How It Works
Be a full-time high school or college student in the upper 20 percent of his/her class, or maintain a "B" or better average, or maintain a "3" or higher on a 1-to-4 point system, or on a Dean's List or Honor Roll. This certification of grades is for the school semester immediately preceeding the anniversary date of the policy.
"Diverse households" discount:Here is how one can qualify for this discount
Be a widow or widower with custody of resident children aged 18 or younger, divorced or legally separated with custody of resident children, or a same-sex or opposite-sex domestic partnership.
News Media Liability policy
To provide comprehensive coverage for news organizations combined with several policy enhancements.
Specifically, the policy departs from the named perils format to include, instead, coverage for risks arising out of the core functions of new organizations -- gathering information and communicating that information to the public. The policy also includes several enhancements that allow it to be tailored to the organization's needs, including subpoena protection, and multimedia coverage for media conglomerates.
Pension Funds: The Role of Insurance Companies
Role and Importance Of Pension Funds
Pension funds have two important roles to play-
• meeting a key social need and
• providing a pool of investible surplus
The break up of the extended family and the increased mobility of the workers has led to the burden of serving the needs of the aged fall on the society as a whole.
State Provision
The particular choice will depend on the views and the expectations of the of the electorate and the society at large. There are different approaches in different countries:
• Sufficiently generous as in Italy
• Relatively modest as in the US
• A middle approach as in UK
A problem with excessive state provision is that it leads to an old age crisis when the ratio of workers to retires is falling.
Charitable Organisations
In poorer countries the economic realities are such that the state providing for the elderly is not practically feasibile and they have to depend on charity.
Private Provision
This approach successfully deals with the problems of the two approaches mentioned above. The Project Oasis Committee of February 1999, identifies that the role of the government is to create infrastructure in order to enable the individual citizens to prepare for old age throughout their time oon the labour force.
Overview of The Pension System
The three pillars of the pension provision are the public pension scheme, private occupational pension schemes and private individual schemes offered by the institutional providers, usually the life insurance companies.
Public Pension Schemes
These schemes are usually provided by the state and are usually compulsory. Besides, they are guaranteed and paid by the state out of th current government’s revenue.
Private Occupational Pension Schemes
These are provided by the employers and the trade unions across whole industry. The state is not involved as a provider but has the role of an enabler and regulator.
Life insurance companies have been involved in both these classes of schemes from the earliest development of such schemes. LIC offers products that meet the statutory liabilities of group gratuity and employer provident funds. The group superannuation plan meets the needs of the employer wishing to provide benefits in addition to the statutory minimum.
Their involvement spans the following areas:
• Product design and packaging
• Distribution
• Record keeping and benefit calculations
• Investment of funds
• Documentation and approval
• Actuarial services
• Payment of benefits
• Provision of risk benefits, typically life and disability insurance.
• Trusteeship
• Private individual schemes
These contributions which are almost exclusively defined are usually arranged by the individuals through life insurance companies. Typically purchasers would be employees who are not members of occupational schemes but those wishing to augment their employer scheme and the self employed.
This area of business as with the occupational schemes is the natural strength of insurance companies. ‘Jeevan Suraksha’ is a prime example of such a product, offering individuals the opportunity to make provisions for their retirement.
Governments Role
Governments keen to reduce the dependency on the state via private pension provisions. They have a choice between using compulsion and incentives. Most of the governments choose the later method. Tax relief is granted to the pension plans and is extremely generous, reflecting the value that the government and the society at large place on the provision of retirement benefit. Tax treatment of the benefits varies by country and by benefit.
In India, the proceeds of the gratuity and provident fund are tax free in the hands of the members. In the UK, a certain amount of the proceeds can be taken as tax-free lump sum and remainder as taxable income. Benefits due on withdrawal from schemes are generally taxed unless they are transferred to another scheme or approved pension plan.
Dave Committee Recommendations
The Dave Committee has made the following recommendations as far as the fiscal changes go:
• An increase on tax relief on contributions to the public provident fund
• A tax on early withdrawals which will provide an incentive to leave the funds in place until retirement and reduce dissipation
• A tax on cash withdrawals at or after the retirement in order to encourage the members to purchase annuities.
Investment Norms
• Separation of assets: It is important that the assets of the pension fund schemes are separated from those of the sponsoring body, be it the employer or an individual. This in order to protect the retirement benefits of the member from the vagaries of the cash flows of business fortunes of the sponsor.
• Security of assets: Legislation will often, as in India restrict investment of pension fund assets to home country. This is generally rooted in a desire to retain a key source of long term capital within the domestic economy but has the additional merit from the point of view of members’
security in that assets are maintained in the same currency as the liabilities.
• Matching of assets and liabilities: The Dave Committee recommends a widening of the range of permissible assets for pension funds to include corporate debt and equity. These reforms are fairly modest and should be seen as the first step of liberalisation rather than the end of the road.
• Regulation of pension funds: There must be simplicity if the individuals are to take greater responsibility for their own retirement income planning. An ally of simplicity is education – a rational choice by employers and individual requires good quality information. Regulation can help in this regard by stipulating that the information must be given to the members or prospective purchasers.