Define agency costs, Discuss and explain agency costs and

Define agency costs

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Reference no: EM1347078

1. Assume that insurers operate in an environment where price regulation does not exist. Describe two potential benefits that this type of system provides to consumers as well as two potential costs.

2. Define agency costs and discuss whether these costs reduce business value.

3. Describe the common objectives that employers have for their firmâ??s benefits plan and indicate whether employees value the benefits package equally, and/or in the same manner as the employer.

4. How do insurers control for adverse selection problems in health insurance products?

5. What are the advantages associated with using a modeling approach (e.g., vs. using historical data) to estimate expected losses from catastrophic events?

Please show all work in an Excel file for the following questions:

6. ABC Life is interested in selling a five-year, single premium life insurance policy with the following features:

- Death benefit of $200,000.
- Death benefits are payable at the end of the year.
- Each policyholder will pay a single premium at the beginning of policy year one.
- A total of 20,000 policies will be sold to males aged 45
a. Using the mortality information provided below and a 6 percent rate of return assumption, what is the single premium ABC Life should charge each insured?
Beginning of Year Age Probability
of Death During Year
1 45 .0044
2 46 .0047
3 47 .0052
4 48 .0058
5 49 .0064

b. Calculate the level annual premium for the same policy (i.e., what amount would the insured have to pay each year, for 5 years, for this coverage?).

7. ABC Property and Casualty is interested in selling coverage to homeowners in a new development. Homes in this development are valued at $500,000. They estimate that losses per exposure (home) will follow the following discrete distribution:

Loss Amount Probability
$500,000 0.005
$100,000 0.01
$50,000 0.03
$25,000 0.05
$10,000 0.07
$5,000 0.10

a. Calculate the gross premium ABC should charge for full coverage if it includes a 15% loading for administration and profit.

b. How much should ABC charge for a policy with a $10,000 deductible?

Reference no: EM1347078

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