Money,Banking and finacial marketsYou exanimate the balances sheet of an insurance company and note that its asset are made up mainly up U.S. Treasury bills and commercial paper. Is this more...

Money,Banking and finacial markets

You exanimate the balances sheet of an insurance company and note that its asset are made up mainly up U.S. Treasury bills and commercial paper. Is this more likely to be the balance sheet of a property and casualty insurance company or a life insurance company? Explain your answer.  

Asked on by ranger1980

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belarafon's profile pic

belarafon | High School Teacher | (Level 2) Educator Emeritus

Posted on

Off topic, I was thrown by the word "Exanimate" in the original post, and I did a search. Imagine my surprise when I found that Exanimate is actually a proper word, although obsolete, and I suspect it is being rejuvenated (not with its original meaning) through the Internet and Buffy-speak.

I also suspect the OP meant to write "Examinate" which, astonishingly, is also a proper word, and more appropriate. Neither, however, is correct in this context; the proper word would be either "Examine" or "Investigate."

 

justaguide's profile pic

justaguide | College Teacher | (Level 2) Distinguished Educator

Posted on

It is quite difficult to determine what kind of insurance company this is from just the two categories of its assets. In terms of liquidity, treasury bills are almost equivalent to cash. This makes up to a large extent the difficulty that may arise in liquidating commercial paper as the process could result in a fall in their value.

literaturenerd's profile pic

literaturenerd | High School Teacher | (Level 2) Educator Emeritus

Posted on

I have to agree with the above posters as well. Death is inevitable. All people are going to die at one time or another. As for natural disasters, one simply cannot expect anything. Trends with weather are track-able, but not as easily as death rates.

accessteacher's profile pic

accessteacher | High School Teacher | (Level 3) Distinguished Educator

Posted on

I think that it is more likely to be the assets of a life insurance company because of the relatively constant amount of payouts that can be seen. Of course, with a life insurance company, we are able to trace trends in the death rates that would create a more regular and steady outgoing. Companies that depend on property enjoy a much more irregular growth and decline in their fortunes.

vangoghfan's profile pic

vangoghfan | College Teacher | (Level 2) Educator Emeritus

Posted on

I agree with the two previous answers.  Rates of death are relatively constant, but property can be destroyed very unexpectedly and in a massive fashion, as in tornadoes, hurricanes, sunamis, etc. Relatively few people die in most of these natural disasters, but enormous amounts of property can be quickly decimated.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

I agree that this is more likely to be the portfolio of a life insurance company, but I would slightly modify the reasoning presented above.  Life insurance companies (particularly those selling whole life coverage) are still going to have to pay out claims.  But their claims are likely to be more predictable.  Therefore, they can keep more of their assets in less liquid investments as well as in ones like these which are not likely to go up or down in value much.

litteacher8's profile pic

litteacher8 | High School Teacher | (Level 3) Distinguished Educator

Posted on

It seems to me that a life insurance company is going to pay out fewer claims than a property insurance company. Its holdings would be more long-term investments. A property insurance company seems more likely to me to need to pay out, so it would want more liquid assets it could use any time.

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