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.  

Expert Answers

An illustration of the letter 'A' in a speech bubbles

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."

 

Approved by eNotes Editorial Team
An illustration of the letter 'A' in a speech bubbles

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.

Approved by eNotes Editorial Team
An illustration of the letter 'A' in a speech bubbles

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.

Approved by eNotes Editorial Team
An illustration of the letter 'A' in a speech bubbles

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.

Approved by eNotes Editorial Team
An illustration of the letter 'A' in a speech bubbles

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.

Approved by eNotes Editorial Team
An illustration of the letter 'A' in a speech bubbles

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.

Approved by eNotes Editorial Team
An illustration of the letter 'A' in a speech bubbles
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.
Approved by eNotes Editorial Team

We’ll help your grades soar

Start your 48-hour free trial and unlock all the summaries, Q&A, and analyses you need to get better grades now.

  • 30,000+ book summaries
  • 20% study tools discount
  • Ad-free content
  • PDF downloads
  • 300,000+ answers
  • 5-star customer support
Start your 48-Hour Free Trial