Chapter 15 - Risk (3)

Question 1

What are the main aims of the insurance company

Answer 1

• Maximise profits of the company, whether these go to shareholders or with-profits policyholders
• maximise the return that the company achieves on its available capital

Question 2

Why is the downgrading of a company’s credit rating a risk

Answer 2

Because it would lead to:
- Adverse publicity
- greater difficulty and cost in raising additional capital in the market
and as a consequence:
- the range of profitable activities may be constrained
- Policyholders may be less likely to maintain or purchase policies with the insurer