Difference Types of insurance companies by Baqir siddique

Mutual versus proprietary

Insurance companies are generally classified as either mutual or proprietary companies. Mutual
companies are owned by the policyholders, while shareholders (who may or may not own
policies) own proprietary insurance companies.

Admitted versus non-admitted

Admitted insurance companies are those in the United States that have been admitted or licensed
by the state licensing agency. The insurance they sell is called admitted insurance. Non-
admitted companies have not been approved by the state licensing agency, but are allowed to sell
insurance under special circumstances when they meet an insurance need that admitted
companies cannot or will not meet.
Alien insurance company
This is an insurance company that is incorporated under the laws of another country. It is
considered an alien entity from the perspective of any other country within which it does
business

Captive insurance companies

Captive insurance companies may be defined as limited-purpose insurance companies
established with the specific objective of financing risks emanating from their parent group or
groups. This definition can sometimes be extended to include some of the risks of the parent
company's customers.

Function of insurance companies

 Life insurance
 Health insurance
 Marine insurance (covers the loss or damage of ships)
 Business insurance
 Bond Insurance etc

Faces risk by finance company

Interest Rate Risk

Because insurance companies carry a large amount of fixed-rate, long-term debt securities, the
market value of their asset portfolios can be very sensitive to interest rate fluctuations. Some
insurance companies have reduced their average maturity on securities, which reduces their
exposure to interest rate risk. Since long-term interest rates have been very low in recent years,
there is much room for long-term interest rates to rise over time. Because insurance companies
invest a large proportion of their funds in long-term debt securities, they are highly exposed to
interest rate risk.

Credit Risk
The corporate bonds, mortgages, and state and local government securities in insurance
companies’ asset portfolios are subject to credit risk. To deal with this risk, some insurance
companies typically invest only in securities assigned a high credit rating. They also diversify
among securities issuers so that the repayment problems experienced by any single issuer will
have only a minor impact on the overall portfolio. Because long-term interest rates have been so
low in recent years, some insurance companies have shifted more funds out of Treasury bonds
and into corporate bonds (including junk bonds) that offer higher yields. However, by striving
for higher returns, they are exposed to a much higher degree of credit risk.

Market Risk
Because insurance companies invest in stock, they are exposed to possible losses on their stock
portfolios during weak stock market conditions.

Liquidity Risk

An additional risk to insurance companies is liquidity risk. A high frequency of claims at a

single point in time could force a company to liquidate assets at a time when the market value is
low, thereby depressing its performance.

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