Equity--insurance companies?

sanju928
Posts: 2
Joined: Mon Mar 10, 2014 10:04 am

Equity--insurance companies?

Postby sanju928 » Mon Mar 10, 2014 10:17 am

I need to undeerstand this statement ' The insurance co. provides protection to a diversified pool of policy holders,whose risks of loss are typically uncorrelated. This provides more predictable losses and cash flows compared to a single ins. Contract,the same way bank's diversified portfolio of loans diversifies the risk of loan defaults.

pradeeppdy
Finance Junkie
Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

Equity--insurance companies?

Postby pradeeppdy » Mon Mar 10, 2014 1:14 pm

Can you please refer the source.

sanju928
Posts: 2
Joined: Mon Mar 10, 2014 10:04 am

Equity--insurance companies?

Postby sanju928 » Mon Mar 10, 2014 2:54 pm

CFA-1 ..schweser notes 2014..page no 207

pradeeppdy
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Equity--insurance companies?

Postby pradeeppdy » Thu Mar 13, 2014 9:53 am

It means if insurance company is providing a loan to a pool of investors. Let's say 100 peoples have insured their life with any insurance company, it will reduce the probability of death at the same time because they all have different health issue and different age group.

pradeeppdy
Finance Junkie
Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

Equity--insurance companies?

Postby pradeeppdy » Tue Apr 01, 2014 10:27 am

This follows a simple rule of Diversification and correlation . The higher the no. of diversified policy holders , the higher will be the diversification and higher negative correlation . As the correlation coefficient approaches to -1 , It signifies more diversification thus greater pradictability.


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