MITHIBAI COLLEGE OF ARTS, CHAUHAN INSTITUTE OF

SCIENCE & AMRUTBEN JIVANLAL COLLEGE OF COMMERCE

AND ECONOMICS
(AUTONOMOUS)
VILE PARLE (W), MUMBAI – 400 056

PROJECT REPORT ON
“ROLE OF INSURANCE SECTOR IN FINANCIAL MARKET”

SUBMITTED BY
ISHA AGRAWAL
ROLL NO – 02

IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF

T.Y.B.COM (FINANCIAL MARKETS)
SEMESTER V

PROJECT GUIDE
PROF. MANDAR THAKUR

UNIVERSITY OF MUMBAI
2019-20
 CERTIFICATE

This is to certify that ISHA AGRAWAL. student of TY-B.Com (Financial

Markets) Semester V of Mothibi College Of Arts, Chauhan Institute of Science
& Amrutben Jivanlal College Of Commerce And Economics has successfully
completed the project on “ROLE OF INSURANCE SECTOR IN
FINANCIAL MARKET” under the guidance of MR. MANDAR THAKUR
for the academic year 2018-19.

INTERNAL EXAMINER EXTERNAL EXAMINER

(MANDAR S THAKUR)

CO-ORDINATOR PRINCIPAL

(MANDAR S THAKUR) (DR. RAJPAL SHRIPAT HANDE)

 DECLARATION

I hereby declare that I have successfully completed the project on “ ROLE OF

INSURANCE SECTOR IN FINANCIAL MARKET” for the academic year
2018-2019. The project is done under the guidance of MR. MANDAR
THAKUR and this project work is submitted in the partial fulfillment of their
requirements for the award of the degree of Bachelor of Commerce (Financial
Markets).
The information provided in the project is true and to the best of my
knowledge.

SIGNATURE OF THE STUDENT

(Name: ISHA AGRAWAL)
Roll No: 02
T.Y.B.F.M (2018-19)
 ACKNOWLEDGEMENT

I feel great pleasure in expressing my regards and profound sense of gratitude

to the people who have extended their help in every possible way so that I can
complete this project. Help is a voluntary fulfillment of duty, which, all the
people mentioned below have performed it to their maximum, in a way giving
me & my research the utmost important.

I take this opportunity to thank the University of Mumbai for giving me chance
to do this project.

I am highly indebted to my faculty guide MR. MANDAR S THAKUR for

his guidance and constant supervision as well as for providing necessary
information regarding the project & also for his support in completing the
project. She has taken pain to go through the project and make necessary
correction as and when needed.

At the onset, I wish to express my gratitude to DR. RAJPAL SHRIPAT

HANDE, Principal, Dr. NUPUR MEHROTRA, Vice Principal, and
MANDAR S THAKUR, ProgrammeCo-Coordinator, for their support.

I would also like to thank my college for providing me with all necessary
amenities like well-equipped computer lab and library which was very helpful
as well as the non-teaching staff members for their support without whom this
project would have been a distant reality. I also extend my heartfelt thanks to
my family, peers and well-wishers.
 EXECUTIVE SUMMARY

Insurance company as institutional investor is very important participant in

financial market, especially in Capital Market. They have very important role
in contribution to make stronger competition on financial market, stimulating
financial innovation, to make stronger corporative governance, to affect in
integration in market, on supporting to regulative. In European financial market
insurance company are the largest institutional investor with e 8,5 trn. Of assets
under management as of 31 December 2012. Structure of these assets in 2011
was: 64% government or high-rated corporate bonds and 15% were equities.
Investment strategies and asset allocations depend on prudential regulation,
taxation, collateral rules for derivatives. On other hand, investment is core to
the provision of insurance products: protection products, life products with
investment features, annuities and other products, products with profit-sharing
provisions. Aim of this work is to show how insurance companies make their
investment strategy and how they make investment decision. This work wants
to prove that a range of regulatory developments have the potential to create
framework conditions that affect insurers’ ability to continue providing long-
term funding to the economy.
 INDEX

Sr.
Topic
No.
1
Literature review

2 Introduction

3 Importance of Insurance

4 How does Insurance work?

5 Types of Insurance

6 The Role of Insurance in Ensuring Financial Market

Liquidity
7
Principles of Investment Insurance Company

8 How does Insurance Company helps stimulate the

economy?
9 Role of Insurance in Economic Development of India

10
The difference between banks and insurance companies

11 Conclusion

12
Bibliography
 LITERATURE REVIEW

The relationship between economic growth and financial growth was investigated by several
studies in the literature (Arestin and Dimitriades, 1997; Levine and Servos, 1998; Ward and
Zeebrugge, 2002; Rousseau and Wachtel, 1998; Ying-Jun and Ye-ting, 2012; De Fiore and
Uhlig, 2011; Osterville, 2013). According to the idea expressed for the first time in United
Nations Trade and Development Conference in 1964, national insurance and reinsurance
market is a characteristic feature of economic growth (Kugler and Fought, 2005). The
insurance sector is not an economic unit that only offers insurance against the risk of people
and organizations to face and it also helps to macroeconomic data to bring employment and
foreign exchange (Osterville, 1996). More recently an alternative theory occurred; a
development and growth in a sector may affect other sectors in the economy. That’s why, so
many governments invest in bank and insurance sector and prefer the way to affect other
sectors in the economy in a positive way (Hussle and Zorbing, 2005).
INTRODUCTION

Insurance policies are used to hedge against the risk of financial losses, both big and small,
that may result from damage to the insured or her property, or from liability for damage or
injury caused to a third party.

1. What is Insurance?

Insurance is a legal agreement between two parties i.e. the insurance company (insurer) and
the individual (insured). In this, the insurance company promises to make good the losses of
the insured on happening of the insured contingency.

The contingency is the event which causes a loss. It can be the death of the policyholder or
damage/destruction of the property. It’s called a contingency because there’s an uncertainty
regarding happening of the event. The insured pays a premium in return for the promise
made by the insurer.
Importance of insurance companies?

Importance of the activities of insurance companies carries out the activities in the financial
markets, reflected in the following:
1)Insurance provides financial stability and reduce uncertainty through indemnity all those
who have suffered loss. In this way it reduces the effect of mass bankruptcies that could have
catastrophic consequences on production, employment, state tax revenues, and the state of an
economy in general.

2)Voluntary pension insurance as one of the most important types of insurance in terms of
investments of these funds on financial markets provides security for future pensioners that
their retirement based on their payments be paid out monthly is stable until the end of their
lives.

3) Growing of small amounts of money collected in the form of premiums, insurance

companies are able to finance large investment projects and thus positively affect the
economic growth of the country.

4) Insurance provides effective risk management and transforming evaluating risk. when
investing, insurance companies thoroughly investigate the creditworthiness Balaban, M. 733
of the borrower, which allows other investors in the market to obtain information about the
characteristics of other firms in the environment when making investment decisions.

5) Conducting international trade between partners who are not sufficiently familiar with is
often conditioned by the existence of certain types of insurance. Thus ensuring encourages
the development of international trade.

6) Granting discounts in premiums, and preventive measures to protect against fire, injury at
work, etc., insurance companies affect the prevention and reduction of losses of the insured
or of society as a whole.
How does insurance work?

The insurer and the insured get a legal contract for the insurance, which is called the
insurance policy. The insurance policy has details about the conditions and circumstances
under which the insurance company will pay out the insurance amount to either the
insuredperson or the nominees. person or the nominees.

Insurance is a way of protecting yourself and your family from a financial loss. Generally,
the premium for a big insurance cover is much lesser in terms of money paid. The insurance
company takes this risk of providing a high cover for a small premium because very few
insured people actually end up claiming the insurance. This is why you get insurance for a
big amount at a low price.

Types of insurance

Any individual or company can seek insurance from an insurance company, but the decision
to provide insurance is at the discretion of the insurance company. The insurance company
will evaluate the claim application to make a decision. Generally, insurance companies
refuse to provide insurance to high-risk applicants.
LIFE INSURANCE

What is Life Insurance

Life insurance is a contract that offers financial compensation in case of death or disability.
Some life insurance policies even offer financial compensation after retirement or a certain
period of time. Life insurance, thus, helps you secure your family’s financial security even in
your absence. You either make a lump-sum payment while purchasing a life insurance policy
or make periodic payments to the insurer. These are known as premiums. In exchange, your
insurer promises to pay an assured sum to your family in the event of death, disability or at a
set time.

Life insurance can help you support your family even after retirement. Depending on what it
covers, Life insurance can be classified into various types:

- It is the most basic type of insurance.

- It covers you for a specific period.
- Your family gets a lump-sum amount in the case of your
Term Insurance
death.
- If, however, you survive the term, no money will be paid to
you or your family.

- It covers you for a lifetime.

- Your family receives a certain sum of money after your
Whole `Life
death.
Insurance
- They will also be entitled to a bonus that often accrues on
such amount.
 - Like a term policy, it is also valid for a certain period.
- A lump-sum amount will be paid to your family in the
Endowment Policy event of your death.
- Unlike a term plan, you get the maturity proceeds after the
term period.

- A certain percentage of the sum assured will be paid to you

periodically throughout the term as survival benefit.
- After the expiry of the term, you get the balance amount as
Money-back Policy maturity proceeds.
- Your family gets the entire sum assured in case of death
during the policy period. This is regardless of the survival
benefit payments made.

- Such products double up as investment tools.

- A part of your premium goes towards your insurance
Unit-linked
cover.
Insurance Plans
- The remaining amount is invested in Debt and Equity.
(ULIPs)
- A lump-sum amount will be paid to your family in the
event of your death.

- This ensures your child’s financial security.

- In the event of your death, your child gets a lump-sum
amount.
Child Plan
- The insurer pays the premium amounts after your death.
- Your child will continue to get a certain sum of money at
specific intervals.
 - This helps build your retirement fund.
- You can get a regular pension amount after retirement.
Pension Plans
- In the case of your death, your family can claim the sum
assured.

Tax Benefits

 Life insurance not only ensures the well-being of your family, it also brings tax
benefits.

 The amount you pay as premium can be deducted from your total taxable income.

 However, this is subject to a maximum of Rs 1.5 lakh, under Section 80C of the
Income Tax Act.
What is General Insurance?

A general insurance is a contract that offers financial compensation on any loss other than
death. It insures everything apart from life. A general insurance compensates you for
financial loss due to liabilities related to your house, car, bike, health, travel, etc. The
insurance company promises to pay you a sum assured to cover damages to your vehicle,
medical treatments to cure health problems, losses due to theft or fire, or even financial
problems during travel.

Simply put, a general insurance offers financial protection for all your assets against loss,
damage, theft, and other liabilities. It is different from life insurance.

Let us help you understand better:

Situation 1 Situation 2 Situation 3

You cannot stop

You plan to propose to
your girlfriend on the
Eiffel Tower.
You already finalized the
deal with a jeweler in
Paris.
But, things don’t go as
planned and you meet
with an accident there.
celebrating your new
car. You hit the roads
Your daughter wants to
with your latest
become a pilot.
possession.
You save all your disposable
Everything goes well
income to fund her dreams.
until a car suddenly
Unfortunately, you fall
tries to overtake you.
severely ill.
It leaves huge dents
and dislocates your
left mirror.

Your treatment requires Your new baby on the You need Rs. 2 lakhs for your
Situation 1 Situation 2 Situation 3

Rs. 50,000. But, still paid block needs repairs treatment immediately. Yet,
for that dainty piece of worth Rs. 30,000. Yet, you also easily pay your
jeweler. you have a smile on daughter’s course fees.
your face.

HOW?

The dent in your car

Your Travel insurance
didn’t cause a dent in
made you ready for You didn’t face a dilemma of
your pocket.
emergencies. choosing one over the other
Your motor
It paid for the expenses and compromise your
insurance’ own
related to your accident. daughter’s future. Your health
damage cover paid for
You could, thus, go insurance took care of your
your car’s damages
ahead and surprise your treatment costs. Your savings,
caused by the
partner with a diamond thus, remained unaffected by
accident. In fact, the
ring without worrying your sudden illness.
insurer settled the bill
about the treatment costs.
directly at the garage.
What are the types of General Insurance available? / What all can be insured?

You can get almost anything, and everything insured. But there are five key types available:

1. Health Insurance

2. Motor Insurance

3. Travel Insurance

4. Home Insurance

5. Fire Insurance

Health Insurance

This type of general insurance covers the cost of medical care. It pays for or reimburses the
amount you pay towards the treatment of any injury or illness.

It usually covers:

 Hospitalisation

 The treatment of critical illnesses

 Medical bills prior to or post hospitalisation

 Day care procedures like Cataract operations

You can also opt for add-on benefits like:

 Maternity cover: Your health insurance covers you for the costs related to childbirth.
This includes pre-delivery check-ups, hospitalisation during delivery, and post-natal
care.

 Pre-existing diseases cover: Your health insurance takes care of the treatment of
diseases you may have before buying the health insurance policy.

 Accident cover: Your health insurance can pay for the medical treatment of injuries
caused due to accidents and mishaps.

Your health insurance can also help you save tax. Your premium payment can reduce your
taxable income.

Tax deduction on the premium

For Total
amount

Rs. 25,000 (Rs. 30,000 if you are a Rs. 25,000 (or Rs.
Self
senior citizen) 30,000)

Parents, who are senior Rs. 55,000 (or Rs.

Rs. 30,000
citizens 60,000)

Senior citizen = Individual aged 60 or over

Motor Insurance

Motor insurance is for your car or bike what health insurance is for your health.

It is a general insurance cover that offers financial protection to your vehicles from loss due
to accidents, damage, theft, fire or natural calamities

You can also get motor insurance for your commercial vehicles.

In India, you cannot drive or ride without motor insurance.

Let’s look at the two key types:

1. Car Insurance

It’s precious—your car. You paid lakhs of rupees to buy that beauty. Even a single scratch
can be painful, forget about bigger damages.

Car insurance can reduce this pain for a few thousand rupees.

How it works:

What the insurer will pay for depends on the type of car insurance plan you purchase
2. Two-wheeler Insurance

This is your bike’s guardian angel. It’s similar to Car insurance.

You cannot ride a bike or scooter in India without insurance.

How it works:

As with car insurance, what the insurer will pay depends on the type of insurance and what it
covers.

Types of Motor Insurance:

Third Party Insurance Comprehensive Car Insurance

Compensates for the damages Covers all kinds of damages and liabilities
caused to another individual, caused to you or a third party. It includes
their vehicle or a third-party damages caused by accidents, sabotage, theft,
property. fire, natural calamities, etc.

You can increase your insurance protection with these Add-on covers for your car and bike
insurance:
Travel insurance

A travel insurance compensates you or pays for any financial liabilities arising out of medical
and non-medical emergencies during your travel abroad or within the country.

There are two types of Travel Insurance.

Single Trip Policy Annual Multi Trip

It covers you during a trip that lasts It covers you for several trips you take
under 180 days. within a year.

What all does travel insurance usually cover?

 Loss of baggage

 Emergency medical expenses

 Loss of passport

 Hijacking

 Delayed flights

 Accidental death
Home Insurance

Home insurance is a cover that pays or compensates you for damage to your home due to
natural calamities, man-made disasters or other threats.

It covers liabilities due to fire, burglary, theft, flood, earthquakes, and sabotage. It not only
offers financial protection to your home, but also takes care of the valuables inside the
property.

Some of the common types of home insurance are:

This covers your home against fire outbreaks and special

perils.
The dangers covered are:
- Natural calamities like lightening, flood, storm,
Standard fire and
earthquake, etc.
special perils policy
- Damage caused due to overflowing or bursting of water
tanks, pipes, etc.
- Damage caused due to man-made activities such as riots,
strikes, etc.

This protects the structure of your home from any kinds of

Home structure risks and damages.
insurance The cover is also extended to the permanent fixtures
within the house such as kitchen and bathroom fittings.

Public liability The damage caused to another person or their property

 coverage inside the insured home can also be compensated.

This covers the content inside the insured home.

Content Insurance What’s commonly covered: Television, refrigerator,
portable equipment, etc.
Fire Insurance

Fire insurance pays or compensates for the damages caused to your property or goods due to
fire.

It covers the replacement, reconstruction or repair expenses of the insured property as well as
the surrounding structures.

It also covers the damages caused to a third-party property due to fire.

In addition to these, it takes care of the expenses of those whose livelihood has been affected
due to fire.

Types of fire insurance

Some of the common types are:

The insurer firsts value the property and then undertakes to pay
Valued policy
compensation up to that value in the case of loss or damage.

Floating policy It covers the damages to properties lying at different places.

This is known as an all-in-one policy.

Comprehensive
It has a wide coverage and includes damages due to fire, theft,
policy
burglary, etc.
The Role of Insurance in Ensuring Financial Market Liquidity

In the last 20 years, economists and financial analysts have reacted to Keynesian and post
Keynesian analyses by turning away from macro-economics or by focusing more narrowly
on inaction and structural factors, rather than on liquidity. At the same time, they have not
really called into question the basic assumptions of the Keynesian paradigm, according to
which the central bank controls economic liquidity by controlling money supply. Recent
noncoal crises have quite understandably shaken their convictions. First of all, the crisis that
rocked the economies of South-East Asia underscored the importance of liquidity in driving
market efficiency, and the pivotal role that noncoal institutions could play quite
independently of the central banks. Secondly, the Japanese crisis has called attention to the
special role played by the insurance industry in ensuring economic liquidity, a role that is
often insufficiently understood. Of particular significance is the fact that, although the
insurance industry cannot play a counter-cyclical role with respect to global demand, it can
nonetheless play just this role with respect to nuancing the economy. This article explores
and develops the role of insurance in supplying liquidity. After defining a few useful terms,
we will turn to the role played by insurance in supplying macroeconomic liquidity. We will
then attempt to gain a better understanding of how insurance contributes to micro-economic
liquidity, a subject of analysis that we believe is both fruitful and largely underexploited.

types of insurance coverage ± property, casualty, and life. It is the presence of the risk factor
that differentiates a savings product from a life insurance product, and banking from
insurance. This promise is extended over a defined period, which may be short (motor
insurance, for example) or long (casualty or liability insurance, for example), and which is
usually limited to a defined geographic scope. Of equal importance is the notion that this
promise is made in return for the prior payment of a premium, calculated using actuarial
methods. For this reason, the type of risk pooling practiced by insurance differs
fundamentally from the ``solidarity'' or mutual support that characterizes pay-as-you-go
social security systems. The premium paid by the holder of an insurance contract is
calculated to cover the likelihood ex ante of the occurrence of an insured risk, while the
contribution paid into the social security system is calculated to cover current expenditures.
Second definition: what is financial liquidity? In the Treatise on Money, John Maynard
Keynes offers a concise and comprehensive definition of asset liquidity: ``one asset is more
liquid than another if it is more certainly realizable at short notice without loss.'' More
generally, market liquidity refers to the ability of economic agents to counterparties willing
to nuance their probable ventures under reasonable terms while at the same time ending
buyers willing to purchase their assets for a reasonable price. Thus, it encompasses a dual
dimension: micro-economic, if we focus on the liquidity of individual economic agents, and
macro-economic, if we focus on the liquidity of a group of economic agents or an entire
economy. We will examine the links between insurance and financial market liquidity from
this dual perspective, keeping in mind that the distinction between the two approaches is
more a matter of perspective than a substantive issue, and that economic and financial
analysis has tended to focus on the former and to neglect the latter since the decline of
Keynesian analysis. Nonetheless, the macro-economic approach remains predominant in the
study of monetary policy.

2. Insurance and macro-economic liquidity The relationship between insurance and macro-
economic liquidity is threefold: First, insurance contributes to ensuring liquidity by pooling
the risks it covers; second, it enhances liquidity by reducing the cost of financial
intermediation; and third, insurance can be the source of a liquidity crisis and systemic risk, a
premise worth exploring. These three contributions to macro-economic liquidity will be
examined in detail below. 2.1. Money creation and risk pooling A look at the differences
between banking and insurance puts the role of insurance in the economy into
particularly sharp focus. Despite their numerous similarities as financial institutions, banks
and insurers contribute to economic liquidity in strikingly different ways. There are two
fundamental differences worth noting. The first difference lies in the fact that, unlike
insurers, banks can create money from their assets. In banking, it can be said that ``money to
lend comes primarily from deposits''. In other words, the funds deposited by economic agents
are the requisite counterpart to the credit that is extended to these same agents or their
debtors. Bank money is primarily created out of the confidence that bankers have in the
creditworthiness and liquidity of their clients. The lender's trust in its client is greater than the
depositor's trust in the bank. In banking, the creation of social wealth is thus ex post facto to
monetary creation; indeed, the latter makes

the former possible. In insurance, the monetary production cycle is the reverse: deposits
condition lending. In other words, the insurers’ debits premiums paid by policyholders for
coverage in the event of a loss ± form the substance of its financial investments. The insurer
does not create money; it merely transfers money that already exists and that has been
provided by policyholders who have placed their trust in the insurer. In insurance, the
creation of social wealth precedes the transfer of funds, because the premiums paid in by
policyholders can only be derived from income they have earned and hence from work
already accomplished. At the same time, the creation of social wealth is also ex post facto, to
the extent that the investments made by insurers in equities, fixed maturities and real-estate
assets help finance the economy, in the same way that bank lending does. And like bankers,
insurers also anticipate the future creation of wealth. The second fundamental difference
between banking and insurance is that the insurer, unlike the banker, can leverage liabilities
to improve economic liquidity. What differentiates the insurance contract from other types of
contracts is that it pools the risks it covers. Insofar as these risks are independent of the will
and behavior of ``insureds'' (hence free of moral hazard), and spread among insureds (hence
free of adverse selection), the insurer can offer this protection for a sum that is considerably
lower than that
which the insured would be required to set aside if he decided to insure himself. But even
assuming that this were not the case, insurance at the very least protects the insured against
the financial constraint that results from the occurrence of a loss, and from the danger of not
having the required financial resources to offset or mitigate its impact. This point is a crucial
one with respect to our subject: in the eyes of the insured, the insurer plays the role of
reducing the financial constraint of insured risks.1 This in turn makes it possible for the
insured to reduce the amount of savings he must set aside to deal with contingencies of this
type, consequently improving the level of liquidity in the economy and facilitating the
Keynesian equalization of the savings and investment rate at a high level of activity. This is
not the case in banking, where the level of deposits has no particular influence on the general
level of liquidity in the economy. These differences between banking and insurance can be
illustrated by the simple IS±LM model (Figure 1).2 This model describes economic
equilibrium as a function of the level of domestic income and the level of interest rates. This
equilibrium should enable the product market and the monetary market to balance out. The
IS curve describes all points of equilibrium in the product market. The slope is negative
because an increase in the interest rate adversely affects investment due to the decrease in the
marginal efficiency of capital, which must lead to a decrease in income to bring savings
down to the level of investment. The LM curve describes all points of equilibrium in the
money market. The slope is positive because, for a given money supply and money velocity,
an increase in product demand leadsto a parallel increase in money demand, which can only
be reabsorbed by an increase intheinterest rate. In a universe devoid of insurance and
banking, the economy's point of equilibrium would be reached at the intersection (A) of the
IS and LM curves. The introduction of insurance reduces precautionary savings and therefore
increases both demand and income (interest rates being equal), which corresponds to a shift
to the right in the IS curve (toward IS9). With the introduction of banking (and hence
lending), the real money supply increases for a given interest rate, which corresponds to a
shift to the right in the LM curve (toward LM9)
Intermediation and the liquidity of financial markets In spite of these fundamental
differences, banking and insurance also make similar contributions to the level of liquidity in
their shared capacity as financial intermediary. Both make a significant contribution to
adjusting supply and demand in the capital markets, despite the fact that the trend toward
disintermediation has limited this contribution to some extent. In order to adjust supply and
demand, banks and insurers have developed the activity of transformation, transforming the
structure of maturities (by extending asset durations compared to liabilities), the structure of
risks (by converting material risks into financial risks, or financial risks into credit risks) and
the structure of negotiability (by using insurance contracts or deposits that are not readily
negotiable in and of themselves to finance equity and fixed maturity securities, which are).
This transformational role is essential given that indivisibilities exist, transaction
technologies are not convex, and the insurance product market is characterized by
asymmetric information (which leads to the risk of adverse selection or moral hazard and the
cost of ex post verification),3 factors that tend to increase transaction costs and reduce
liquidity. In playing this transformational role, banks and insurers offer their clients
diversification and

a risk spread that is closer to the optimal structure they could obtain if markets were
complete and functioned perfectly.4 In other words, as a financial intermediary, the role of
the insurer, like that of the banker, is threefold. The insurer as liquidity pool. This involves
insurance liabilities. The occurrence of a loss imposes adjustment costs on the agents
affected, which can be thought of as idiosyncratic liquidity shocks that may affect agent
patterns of consumption and investment. To the extent that these shocks are not perfectly
correlated within the system, the cash outlay required to

repair the damage resulting from the loss increases less than proportionately to the number of
insureds covered. By pooling individual risks, the insurer is able to reduce the volume of
liquidity that the economy must maintain to absorb these losses. Hence, the insurer serves as
a liquidity pool that saves liquidity, thereby making it available for other activities. In
playing this role, the insurer contributes to efficient capital allocation within the economy,
thereby enhancing the overall efficiency of the financial markets. The insurer as coalition for
sharing information for the benefit of businesses seeking to raise capital. This involves
insurance assets, as seen from the perspective of the businesses they finance. Businesses that
raise public equity capital are generally better informed of their quality as an investment than
individual retail investors are. Consequently, the retail investor who wants to build savings
by investing in these companies as a way of securing protection against the occurrence of
certain types of risks faces the problem of adverse selection. In order to signal their quality to
individual investors, these businesses can invest a significant portion of their equity capital in
their own projects, which they in fact do, but to a limited degree given their aversion to risk
and the unreasonably high cost that this strategy implies for ``good'' businesses. Insurance
provides the latter with a mechanism for presenting themselves to policyholders as a
homogenous coalition of uniform quality, selected by insurance companies, and this in turn
allows businesses to procure better financing terms than they could if they appealed to each
of these investors individually. This coalition is all the more effective given that the
individual returns of coalition members, which
are imperfectly correlated among themselves, can be pooled. The insurer as mandated
manager on behalf of policyholders. Once again, this involves insurance assets, but this time
from the perspective of the policyholder. Returning to the notion of asymmetric information
mentioned above, it is clear that investors must thoroughly research businesses that raise
equity in the capital markets and monitor them over time to avoid falling prey to
opportunists, and even to punish such behavior when it does occur. By delegating the
management of their precautionary savings to insurers, policyholders benefit from the fact
that the cost of gathering information on businesses and monitoring them grows less rapidly
than the number of policyholders and the volume of funds available for investment. This
mechanism is beneficial to policyholders to the extent that the returns resulting from this
delegation are higher than the cost of monitoring insurers, either directly, by policyholders
themselves, or indirectly, via public services officially charged with this watchdog function
in each country. Viewed from this perspective, insurance offers a comparative advantage
over banking due to its expertise in the area of risk. Table 1 below provides an idea of the
relative weight of insurance in financing theeconomy via the markets. In France, the
insurance industry plays a much greater role in the bond market than it does in the equity
market compared with the role of insurance in the United States, where the difference
between the two is minimal. This difference is attributable to the fact that, in France, a
substantial portion of equities are held by their historical owners and by foreigners, and also
to the importance of pension funds in the United States (which becomes clear when the
figures are adjusted for pension funds, see below). However, current efforts to modernize
French capitalism, combined with the need to deal with the ageing of the population and its
impact on retirement funding, should enable insurers to play a greater role in supplying
liquidity to the French economy, particularly in the form of equity investments.
Insurance, systemic risk and liquidity crisis-

It is important to consider the extent to which insurance can both supply liquidity to the
economy and, like banks, also be a source of systemic risk and the originator of a liquidity
crisis. Bank-driven panics were a recurrent phenomenon up to and through the crash of 1929.
More recent crises, in Japan and in Eastern and South-East Asia, have shown that the
phenomenon has not entirely disappeared. Indeed, it has been a major preoccupation of
international financial institutions in recent years (e.g. the IMF and Joint Forum). Within the
banking system, the systemic risk begins with a local incident, involving a particular banking
institution, which then spills over into the entire financial sector, regardless of the solvency
of the individual institutions affected, leading to a collapse in the system of payments and,
consequently, to a general economic crisis. The shock wave is propagated via inter-bank and
corporate lending activities, without which banks and businesses could not continue to
operate. This type of risk should not be confused with a general shock that impacts all banks
at the same time (for example, an interest rate shock, an inflationary shock or a stock market
shock). The contagion in question here has causes that are primarily psychological: in a
universe where information is imperfect, agents will tend to interpret the failure of the first
bank as a threat to all other banks, and will feel justified in adopting an attitude of mistrust
with respect to banks in general. This type of contagion is typical of an economy with
multiple points of equilibrium. It is an essentially self-fulfilling prophecy whose impact is
impossible to predict.5 While the initial incident can be likened to a solvency crisis, the
spilling over of the crisis through contagion bears the hallmarks of a liquidity crisis:
economic agents have quite simply lost faith in the system. There are at least four good
reasons for thinking that the economy is less exposed to a systemic risk originating in the
insurance sector than it is to one from the banking sector. · The liquidity that banks pump
into the economy in the form of credit is not contingent on some prior creation of wealth; it is
the anticipation of the creation of wealth. Conversely, as we saw earlier on, the liquidity that
insurance injects into the economic system, while it also anticipates some future creation of
wealth, is only a transfer of liquidities resulting from the prior creation of wealth on the part
of policyholders. Consequently, the failure of a bank has a potential impact on a large
number of individuals, not just on its own clients, and this lends itself to panic, while the
insolvency of an insurer impacts a group of clearly identified policyholders and beneficiaries,
which helps contain any tendency to lose faith.

 The short-term liquidity of bank deposits is vitally important, since such funds are
used by their depositors to cover daily cash needs. Conversely, only a portion of the
claim policyholders have on insurers corresponds to a possible short-term liquidity
need ± that needed to cover a loss occurrence over the short term. This situation only
serves to aggravate the risk of a panic movement in the banking sector compared with
the insurance sector. ·

 Depositors can withdraw all their money from their bank at any time and immediately,
without paying any financial or tax penalty. Policy surrender is necessarily more
gradual, since it is less easy and costlier for the policyholder, due to the nature of
insurance contracts that have to remove risks of free riding and moral hazard. In life
insurance, for example, early withdrawals are slowed down: first, by contractually
binding penalties due to the insurer (which in France can run as high as 5 per cent);
second, by the loss of entitlement to the favorable tax treatment generally granted (in
France, a withdrawal within eight years results in the taxation of revenues at the
 marginal income tax rate, but only at 7.5 per cent thereafter); and third, by the delay
usually allowed for repayment of the cash value of the policy (in France, insurers have
two months to give back the money). Consequently, a sudden massive fight of
depositors is a possibility, whereas any fight on the part of policyholders from their
insurer is necessarily more gradual.

· Finally, the tissue of financial relationships that insurance enterprises have with other
financial institutions is not particularly entangled, with the exception of reinsurance
relationships and equity investments. Banks, on the other hand, are part of a dense and
interlocking network of inter-bank loans and credit arrangements.

For this reason, the insurance industry is primarily perceived as a risk absorber. Not a single
bankruptcy on the part of an insurer or reinsurer has triggered a macro-economic crisis.
During the real-estate crisis of the late 1980s and early 1990s, insurers did not rush to divest
themselves of their real-estate assets like the banks did. Moreover, it took a full ten years for
the Japanese crisis to bring some of Japan's major insurers to their knees. Its banking sector,
meanwhile, is mired in a deep crisis that has weighed heavy on the domestic economy for
many years now, despite major attempts to shore it up through monetary policy and public
funding. In the absence of detailed data from companies, we can nonetheless test the impact
of the contagion phenomenon in the banking sector compared with the insurance sector by
studying the statistical relationships between the stock price quotations of publicly listed
companies in these sectors, synthetic indices of these sectors, and the global market index.
Appendix

1. presents the data we used for this purpose and the modelling that was done. As Table 2
below illustrates, these data support the thesis that banks are far more exposed to the
contagion phenomenon than insurance companies: · The percentage of historical stock price
volatility for each company taken individually that is attributable to shocks triggered by other
companies in the same economic sector is 1.5 times higher in the banking industry than in the
insurance industry; · The percentage of the historical volatility of the CAC 40 that is
attributable to shocks triggered by insurance is negligible compared with that which is
attributable to banking; · Finally, the percentage of historical volatility in banking and
insurance stock price indices that is attributable to insurance is negligible compared with that
which is attributable to banking. The data in the last column can be alternatively represented
as in Figure 2, which shows the respective 120-month impact on the average stock price of
all companies of a one-off

shock triggered by the insurance industry, the banking sector, and the overall economy. The
tendency of shocks triggered by the insurance industry to spill over into the overall economy
is much lower, and its impact tends to be of a much shorter duration. Conversely, shocks
originating in the banking sector have measurable effects on the entire economy that appear
to be durable. Naturally, shocks that originate in the overall economy tend to predominate.
The reason that the insurance industry plays this role of economic shock absorber has to do
with its practice of long-term asset liability management, a point we will return to below.
3. Insurance and micro-economic liquidity The insurance contribution to micro-economic
liquidity can be analyzed on the level of the liquidity of the insurance enterprise itself, which
is regulated in all the major industrialized nations, and in terms of policyholder liquidity,
which is the ultimate aim of insurance.

The insurer's liquidity In order for the net contribution of insurance to liquidity to be
effective, insurance enterprises must themselves be liquid. Insurers have four major sources
of liquidity: equity capital, premiums paid in by policyholders in return for insurance
coverage, the investment quality of the securities in which insurers invest their reserves, and
the match between the inflows generated by these assets and the outflows made to meet
policyholder obligations under insurance contracts. Liquidity is very much a core concern of
any insurance company, and is achieved via assetliability management, the pooling of
insurance risks, the spreading of credit and market risks, and the reinsurance of risks. The
pooling of an insurer's own risks is a three-dimensional process that is critical in ensuring the
liquidity of insurance enterprises. The first dimension of risk-pooling results from the fact
that a number of insureds are covered for a single risk, with each insured presumed to
represent an independent risk. The second dimension results from the fact that insurers cover
a number of different risks that are weakly correlated. The third dimension of risk-pooling
relates to inter-temporal pooling, i.e. the possibility of smoothing out the impact of claims
over several generations of policies. This dimension, which appears to be absent from
banking, offers insurers an additional degree of flexibility that strengthens asset liability
management policy and improves their ability to deal with unexpected shocks. It entails
smoothing out premiums and underwriting results over several generations of policies,6
primarily through the use of policyholder participation in profits and equalization reserves.
The investment policies of French insurers, which generally reject a long-term perspective
and integrate renewal and new business forecasting to no small degree, illustrate this concern
for inter-temporal pooling quite clearly (Table 3). For example, French insurers hold equity
securities for an average of four years, compared with just over seven months for other
investors. The holding periods for bonds are one year and less than one month, respectively.
By way of illustration, Figure 3 shows why it is important for life insurers to be able to
practice inter-temporal pooling if they want to be able to guarantee a minimum return to
policyholders while also being reasonably certain of their ability to finance this guarantee. To
be able to offer a life insurance beneficiary an ex ante guarantee of a minimum annual return
of 2 per cent (adjusted for inaction), with 95 per cent probability of being able to finance this

guarantee through the returns generated by insurance company assets, the guru shows that it
is necessary to pool 20 years of bond yields or 40 years of returns on CAC 40 equities. It
would be impossible to guarantee this minimum level of return on the basis of a money
market investment. The inter-temporal pooling options that are available to insurers offer
advantageous liquidity terms compared with other economic agents and reduce substantially,
in the short run, the risk of a sudden liquidity crisis that banks face. Unlike banks, solvent
insurance enterprises stand very little chance of ending themselves faced with the risk of
illiquidity. There is, however, a downside to the inter-temporal pooling option open to
insurers: an insolvent insurance company can remain liquid, possibly for a number of years.
This is virtually unthinkable for a bank. Consequently, an insolvent insurance company can
do far more serious financial damage than an insolvent bank (leaving aside, for the sake of
argument, the macro-economic effects this would produce). This is what makes the minimum
solvency requirement placed on insurance companies both extremely important and
extremely difficult ± the short-term or ``snapshot’ ‘liquidity of an insurance enterprise is not
an accurate yardstick of its financial health. In this respect, insurance companies are
diametrically opposed to banks. The solvency requirement placed on insurance companies,
which sets minimum capital adequacy levels based on insurance obligations and/or assets,
depending on the country, is motivated by the desire to structure explicit or implicit transfers
of liquidity over time and limit ``free ride'' policies that favor the short term. At the same
time, it would be dangerous not to regulate the liquidity of an insurance enterprise under the
guise of regulating its solvency. A solvent insurance enterprise is above all a liquid
enterprise, over the short term as well as over the long (and even very long) term. Solvency,
which is measured by applying general rules at a particular moment in time and on the
ultimate cushion that equity capital provides insurers in the event of a serious shock, is at
best highly approximate compared with what the measurement of long-term liquidity
requires, based as it is on sophisticated and disaggregated internal models. Attempts to
measure the solvency of an insurance company should increasingly include the measurement
of its long-term liquidity.

Policyholder liquidity The insurance offering has three effects on policyholder behavior: a
substitution effect, an income effect, and an efficiency effect. As we have seen, insurance
reduces the cost of covering risks through (i) the pooling of risks, (ii) the adoption of a well-
informed investment policy, and (iii) the asset liability management techniques employed by
insurers. The reduced cost of acquiring protection against risks encourages policyholders to
substitute other products for insurance products, thereby improving their level of coverage.
Uncertainty as to policyholder solvency, whether the policyholder is an individual or a
business, is therefore reduced, and creditworthiness is improved, which increases the value of
the time option, i.e. the option to decide not to postpone investing in them. This in turn
enhances micro-economic liquidity and stimulates economic activity. In addition, the
reduced cost of risk coverage also gives insureds greater purchasing power, which translates
into an income effect that stimulates spending and demand, to the benefit all types of
products and services, not just those sold by insurers. Independently of any monetary
creation, the liquidity of the entire economy is enhanced by the production of insurance
services. Unfortunately, the extent to which any particular economic agent is insured is not a
known factor in arm's-length transactions, which means that the other party to a transaction is
not able to discriminate between agents who are adequately covered, and hence a safe bet,
from other economic agents. Counterparties generally cannot impose mechanisms of the type
used by insurers, such as the deductible, which help ascertain the agent's risk level. This
market inefficiency has an adverse impact, since it prohibits lenders from adjusting interest
rates on the basis of the borrower's intrinsic worthiness measured by the degree to which his
insurable property is insured. This forces lenders to ration ®nuancing and agent liquidity
without taking insurance coverage into account. The end result is a sub-optimal allocation of
capital. The question that arises is how to improve market efficiency by reducing this
information-driven inefficiency. The International Accounting Standards Committee
recommendation of adopting the full fair-value standard in accounting for financial
instruments, which is supported at the European level (by both the Commission and the
Council), would help resolve the problem by requiring integration of the credit risk into
balance sheets. In fact, this credit risk cannot be evaluated independently of the coverage
underwritten by the insurance enterprises in question. Information on this coverage would
thus be disclosed, at least implicitly, in their financial statements. An alternative would be to
introduce an accounting standard that requires businesses to itemize their coverage against
large insurable risks in the notes to their financial statements, and in particular their insurance
arrangements for low-frequency, high-impact risks.
1. PRINCIPLES OF INVESTMENT INSURANCE COMPANY

Since the primary function you have homeowners insurance, which refers to the protection
of the insured, they have to allocate a sufficient amount of reserves based on actuarial
estimates. Another requirement for the protection of policyholders and their timely
compensation in the form of payment of compensation or payment of the sum insured is the
security and profitability of reserves. During the placement of available funds, insurance
companies must seek to make a profit at least equal the average interest rate earned on the
capital market. Placements of insurance companies can be implemented in one of the
following categories: 1) Real estate or the granting of mortgages and other loans, 2) Purchase
of securities 3) Deposit funds with banks and other financial institutions. Each investment of
insurance company based on two basic principles: 1) Providing a high level of protection
against the risk of its insured, 2) Achieving the highest possible return on invested funds.
To these two conditions have been satisfied, developed the three principles on which the
investment policy of the insurer: 1) The principle of security, 2) The principle of profitability
and 3) Principle of liquidity. The specificity of the position that insurance companies take the
financial market, is reflected in the requirement that they must fulfill. This requirement is an
obligation to policyholders, which is a timely, must comply and which determines the
structure of the portfolio of insurance companies. Therefore, when making investment
decisions in the types of assets will qualify for the funds, portfolio managers must take into
account the safety of those investments. If the insurance companies own the remaining funds
invested in high-risk assets would be uncertainty about the fulfillment of their basic
functions, and that the payment of compensation to the insured amount. For this reason,
insurance companies have to sell their assets primarily in low risk assets. This primarily
applies to companies engaged in life insurance, since it is long-lasting quality sources of
funds to qualify for long-term needs and to align the maturity structure of funds from the
placement of assets and liabilities of insurance companies. 2 To ensure the solvency of
insurance companies, precisely for this reason it is necessary for the state to determine what
types of assets in which a percentage of the insurance companies can invest their funds.
Growth of premium and accumulation of funds on the basis of life insurance products has led
to the fact that insurance companies are the biggest institutional investor in Europe. At this
point the data drain for the year 2012, where it can be observed that the Insurance Companies
occupy 51% of the finance market as the largest investor.

This principle determines the requirement to maximize return on investment while

minimizing risk. Portfolio managers at insurance companies are required to in the asset
management of reserves, ensuring return on investment that provides at least to preserve the
real value of invested assets. Such rates therefore should be at least equal to the average
interest rate on the capital market. Insurance companies would have effectively and with
minimal risk to invest resources while maintaining the current liquidity. Given that the
primary function of ensuring the protection of the insured, safety should be the basic
principle of investing and much more important than profitability. It is therefore a necessity
to diversify the investment portfolio and thus ensure the realization of returns with an
acceptable level of risk. In order to ensure the safety of investments shall be the division of
assets of insurance companies according to the level of risk: The principle of liquidity
assumed such investment structure that guarantees that at any time a sufficient amount of
liquid assets or liquid securities that can be easily and at low cost can sell the financial
market before their maturity. Given the need to respect this principle, the insurance company
is extremely important to comply with the funding sources of the maturity structure of the
same rank. The main characteristic of the non-life insurance is to have duration of one
Balaban, M. 737 year, therefore it is a short-term source and short-term obligation, and the
investment should be focused on short-term securities, liquid assets such as commercial
paper, treasury bills.
How the insurance industry helps stimulate the economy

When most people think of insurance, it’s individual auto or homeowner’s policies that first
come to mind. Some might even think about the insurance payments they must make each
month to keep their businesses open.
It’s not often that people immediately reflect on the important role insurance companies play in
stimulating our economy, but that fact is true. Insurance companies help keep our economy
strong, and more vibrant in various ways.

Insurance companies offer financial protection for consumers.

Consumers have become so accustomed to routine that they often don’t realize the barrage of
risk and uncertainty they face every day. Whether it’s a vehicle accident, an accidental house
fire, a flooded basement from a big storm, or an injury at work, unexpected hardships can
come up at any moment.
Insurance can help manage this uncertainty and potential loss by providing vital financial
protection. When disaster strikes, an insurance plan can provide consumers with the financial
assistance they need. Without it, many individuals in these situations would be financially
strained and could even face bankruptcy.

Insurance companies help businesses mitigate risk and protect their employees.
As with consumers, helping businesses mitigate risk can have a lasting, positive impact on
the economy. A stronger Main Street leads to stronger communities and overall improved
economic health of individual states and the country as a whole. Similar to consumers,
businesses also can face financial duress due to disasters and unforeseen challenges. When
disaster does strike, insurance is one of the best financial tools businesses can call upon to
help tackle these challenges.
Business insurance also helps drive growth. At its core, the protective safety net of insurance
enables businesses to undertake higher-risk, higher-return activities than they would in the
absence of insurance. These actions help businesses run successfully, which translate to more
jobs and an increase in economic activity.
Additionally, when an employee gets injured on the job, it is business insurance that helps
cover the costs of that employee’s treatment, and any potential wage interruption.
Insurance companies help keep our farms operating.
During every planting and harvest season, farmers face a unique set of challenges. Insurance
products for farmers are uniquely tailored to their needs, including coverage for the financial
risks that come with floods, droughts, and equipment failures. Keeping this important
industry operating is another way insurance positively contributes to the economy.

Insurance companies help finance economic development projects.

According to the American Insurance Association, property-casualty insurers operating in the
U.S. have more than $1.4 trillion invested in the economy. Insurance companies typically
invest premiums, or dollars, that are not used to pay claims and other operating expenses.
Through stock, corporate and government bonds, and real estate mortgages, these
investments often finance building construction and provide other crucial support to
economic development projects around the nation.

Insurance is much more than monthly premium payments consumers and businesses must
make. As a whole, the insurance industry is a vital thread in the fabric of a strong American
economy. Insurance makes our economy possible and dreams like homeownership, a reality.
To learn more about the Iowa Insurance Institute members that help stimulate the Iowa
economy, please visit our Members page.
Role of Insurance in Economic Development of India?

Insurance sector in India is one of the most booming sectors of the economy and is growing
at the rate of 15-20 percent per annum. In India, insurance is a flourishing industry, with
several national and international players competing with each others. Indian insurance
companies offer a comprehensive range of insurance plans. The insurance industry of India
consists of 53 insurance companies of which 24 are in life insurance business and 29 are non-
life insurers. Among the life insurers, Life Insurance Corporation is the sole public sector
company. Apart from that, among the non-life insurers there are six public sector insurers. In
addition to these, there is sole national re-insurer, namely, General Insurance Corporation of
India. Due to the growing demand for insurance, more and more companies are now
emerging in the Indian insurance sector.
Insurance is one of the demanding financial products in India. Its basic motto is to protect the
family of any uncertainty in life. So it is long term investment and need knowledge about
that. Indian life insurance is too old. It is there from British Period and after nationalization;
it has come fully under Government. The Indian insurance market is a huge business
opportunity. India currently accounts for less than 1.5 per cent of the world’s total insurance
premiums and about 2 per cent of the world’s life insurance premiums despite being the
second most populous nation. The country is the fifteenth largest insurance market in the
world in terms of premium volume, and has the potential to grow exponentially in the
coming years. India’s life insurance sector is the biggest in the world with about 360 million
policies which are expected to increase at a Compound Annual Growth Rate of 12-15 per
cent over the next five years. The insurance industry plans to hike penetration levels to five
per cent by 2020.
The difference between banks and insurance companies ?

Banks have a special role in the financial system on account of their central role in the
transmission of monetary policy and their participation in payments systems. The
interconnections between banks in interbank markets and payment systems can also cause
problems faced by one bank to spread to others. Banks are therefore of particular importance
for financial system stability. This importance is exacerbated by the fact that banks’ assets
(such as customer loans) are mostly long-term in character, whereas their liabilities (such as
deposits) are of shorter-term duration. This leaves the banks vulnerable to depositor runs that
can result in liquidity shortages. Insurers on the other hand, unlike banks, generally have
liabilities with a longer maturity than their assets, which makes them less vulnerable to
customer runs. In addition, insurers’ liabilities are usually less liquid than bank deposits, as
the possibility of withdrawing savings is restricted in most insurance contracts and is also
more costly for customers.

The insurance sector can be of considerable importance to financial system stability, but
insurers do not pose the same systemic risk for the financial system as banks. This is because
insurers are not as closely interconnected as banks are, since they do not directly participate
in payments systems. This does not necessarily, however, mean that simultaneous defaults
are less likely to occur in the insurance sector than in the banking sector, at least not during
periods of financial turmoil. This can be exemplify ed by looking at the implied probability
of two or more euro area insurers and euro area LCBGs defaulting at the same time –
calculated by using CDS spreads and equity returns. This “systemic risk indicator” was
somewhat lower for insurers than for the LCBGs before the outbreak of the financial market
turmoil in the summer of 2007, which implies that the systemic risk in the insurance sector
was indeed perceived to be lower. However, the indicator displayed rather similar levels and
developments for banks and insurers during the first year after the outbreak of the financial
market turmoil. The similarity of developments among banks and insurers during this period
could possibly be explained by the fact that many of the risks that insurers and banks faced
during this period – such as financial markets risks – were the same. In October 2008, when
problems in the banking sector intensified, the indicator for euro area insurers rose above that
of banks, and it remained higher until September 2009. This development could probably be
explained by the fact that banks received more support from governments than insurers did
during this period, which reduced the likelihood of banks defaulting.

The traditional view that insurers pose less systemic risk than banks did not take into account
the growing interaction between insurers, financial markets, banks and other financial
intermediaries. As insurers are increasingly more involved in financial transactions with
other financial intermediaries, such as banks, the potential for problems confronting an
insurer to spread in the financial system has increased. In addition, the insurance linked
securities market (with instruments such as catastrophe bonds) has created direct links
between insurers as they sometimes buy such securities to diversify their own risk exposure,
while benefitting from investment in instruments linked to their area of expertise.
CONCLUSION

Although insurers can contribute to financial stability on account of both their capacity to
reallocate risks in the economy and their often long-term investment horizons, they also have
the potential to destabilise the financial system. In particular, a problem confronting an
insurer could affect not only households and fi rms that have bought insurance, but also
financial markets – via insurers’ investment activities – and banks and other financial
institutions – via direct and indirect links. All this warrants a regular analysis and monitoring
of insurers’ financial performance and assessments of their risk by central banks,
international organisations and other bodies that cover countries/regions where the insurance
sector plays a significant role. In addition, given that the banking and insurance sectors have
become increasingly interlinked, financial stability assessments should avoid an approach
that is too sector-oriented and should take into account the linkages between these different
parts of the financial system.
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A.K. Jain (2004) ‘The Journal of Insurance Institute of India’,

A.K. Shukla (2006) ‘The Journal of Insurance Institute of India’,

AsliDemirgucKunt (2001) ‘Financial Structures and Economic Growth: A cross country

comparison of life Insurance Markets and life insurance’,

Agrawal, N.P (1983) Analysis of Financial Statements

Bhattacharya, K.M. and Agrawal O.P.(2011), Basics of Banking and Finance, Himalaya
Publishing House Pvt. Ltd., New Delhi

Gupta, S.K. and Aggarwal, N. (2012), Financial Services, Kalyani Publishers, Ludhiana