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Chapter 5: Insurer Ownership, Financial, and Operational Strucutre (5.2…

- - - - Protect the Value of Specific Assets: Some of funds used for activites such as training employees and obtaining market research, which have zero salvage value
  - - - Double Taxation of Investment Returns: US tax code presents another important difference between investing in TLC and inveesting in a mutual fund with the same portfolio of stocks and bonds
        
        Agency Costs: When investors buy stock, they give some discretion to managers as to how to use those funds. In essence, stockholders make managers their agents
        
        Issuance and Underpricing Costs: Insurers also may limit the amount of capital that they raise through equity issues because of equity issuance and underpricing costs
- - - - Nonproportional contract: the reinsurer pays part of ceding insurer's claims only if a particular threshold