SOURCE OF INSURANCE FUNDS:

Saving on expenses: It means reducing the amount of money spend on everyday items and services.
This can be achieve by creating a budget, avoiding unnecessary spending and cutting back on non-
essential subscription and services.
Savings can help insurance in many ways:
a) Lower claims: If people are spending less money on day-to-day expenses, they may be likely
to file insurance claims. For eg. If people are cooking at home instead of going out to
Restaurants, there may be less need for insurance coverage for insurance meals. This can help
insurance companies for reduce their claims payout and overall expenses.
b) Large pool of potential customers: By saving on expenses, people may have more money
available to purchase insurance policies. This can expand the pool of potential customers for
insurance companies and lead to increased revenue.
c) Improved financial stability: By reducing costs and increasing revenue, insurance companies
can become more financially stable. This can help them weather economic downturns and other
challenges more effectively.
d) Increased demand for certain types of insurance: As people's behavior and spending
habits change, they may become more interested in certain types of insurance coverage. For
example, if more people are cooking at home, there may be more demand for insurance policies
that cover kitchen appliances and other related risks.
e) Better investments: When people save on expenses, they may be able to invest more money
in insurance policies, stocks, and other investment opportunities. This can provide insurance
companies with a larger pool of funds to invest and generate income from.

Other sources of funds:

Equity: is a viable source of finance for insurance companies, but it is not the primary source of
funding for most of them. Insurance companies typically rely on premiums paid by policyholders
to generate revenue, and they use these funds to invest in various assets to earn a return.
However, equity can be used to raise additional funds or to provide financing for growth and
expansion.

Here are some ways insurance companies can use equity as a source of finance:

1. Initial Public Offering (IPO): Insurance companies can raise capital by offering shares to
the public through an IPO. This is a good option for companies that are looking to expand their
business or increase their market share.

2. Secondary Public Offering (SPO): Insurance companies can also issue additional shares to
the public through an SPO to raise capital.

3. Private Placements: Insurance companies can also issue shares to private investors, such as
venture capitalists or private equity firms, to raise funds.

4. Retained Earnings: Insurance companies can also use their retained earnings to finance
growth and expansion. Retained earnings are the profits that the company has earned but not
 distributed to shareholders in the form of dividends.

There are benefits and disadvantages of using Equity as a source of financing for
insurance companies. One of the advantages is that equity financing does not have to
be repaid, and the company can use the funds for long-term planning and investment
purposes that would not be possible with debt financing. However, the downside is that
equity financing can dilute existing shareholders' ownership stakes in the company,
which could lead to a decrease in share value.

In conclusion, equity can be an important source of financing for insurance companies, but it is
not the primary source of funding for most of them. Insurance companies can raise capital
through IPOs, SPOs, private placements, and retained earnings. Insurance companies need to
carefully evaluate whether raising funds through equity is the best option for their specific
needs, balancing the benefits and disadvantages.

Principle to be followed while investing in insurance funds:

Liquidity: Liquidity is important for insurance companies since they need to have sufficient funds on
hand to pay out claims and meet other obligations as they arise. In the insurance industry, liquidity
refers to the availability of cash and other liquid assets that can be quickly converted into cash to meet
short-term obligations.

Here are some important points to consider from an insurance point of view:

1. Importance of liquidity: Insurance companies need to have sufficient liquidity to meet the claims of
policyholders in a timely manner. If an insurance company is not liquid, it may not have the funds
available to pay out claims and meet other obligations. This can lead to financial distress and loss of
public confidence, which can hurt the company's reputation and customer base.

2. Sources of liquidity: Insurance companies can access liquidity through a variety of sources,
including cash reserves, short-term investments and credit facilities. Typically, insurance companies hold
a significant amount of cash and cash equivalents on their balance sheets, which can be used to meet
short-term financial obligations.

3. Managing liquidity: Insurance companies need to manage their liquidity effectively to ensure that
they have sufficient funds available to meet their obligations while also earning a reasonable return on
their investments. This involves balancing the need for liquidity with the need for investment returns,
avoiding risky investments that could potentially harm their liquidity position.

4. Regulatory requirements: Insurance companies are subject to various regulatory requirements

related to capital and liquidity, which are designed to ensure that they have sufficient funds available to
meet their obligations. These requirements vary by country and jurisdiction but generally involve
maintaining a minimum level of liquid assets relative to the insurer's obligations.
In summary, liquidity is an important consideration for insurance companies, as they need to have
sufficient funds available to meet claims and other obligations. Insurance companies can access liquidity
through a variety of sources, including cash reserves, short-term investments and credit facilities.
Managing liquidity effectively involves balancing the need for liquidity with the need for investment
returns and complying with regulatory requirements.

To miss Soni Chettri

Done by Nathaniel Lyngdoh Nonglait
Roll no. U20CM3062