insurance companies AND What is a General Insurance Company?

What is a General Insurance Company?

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insurance companies AND What is a General Insurance Company?

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The General Insurance Companies are companies that offer insurance that covers the risk of loss or deterioration in things or in the patrimony. Exceptionally, they also cover the risks of personal accidents and health insurance.

They can also engage in insurance intermediation and liquidation.

National insurance companies can only reinsure risks of the group in which they are authorized to operate, that is, of the first group.

The minimum capital to operate is 90,000 UF.

This question is related to the following entities, investment instruments or types of insurance:

General Insurance Companies


Insurance company
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This notice was posted on July 27, 2011.
For other meanings of "insurer" that redirect here, see Insurance (disambiguation).
An insurance company or insurer is the company specialized in insurance, whose economic activity consists of producing the security service, covering certain economic risks (insurable risks) to the economic units of production and consumption.

Its activity is an operation to accumulate wealth, through the contributions of many subjects exposed to unfavorable economic events, to allocate the accumulated thus, to the few to whom the need arises. Follow the principle of mutuality, seeking solidarity among a group subject to risks.

This mutuality is organized entrepreneurially, creating a patrimony that faces the risks. The unfavorable effect of these risks, considered as a whole, is substantially reduced, because, for the insurer, the individual risks are compensated: only a few insured people suffer them, compared to the many who contribute to the payment of the coverage. This allows a statistical risk management, from the economic point of view, although it is kept individually from the legal point of view.

Index
1 Financial activity
2 Captive insurance company
3 Characteristics of insurance companies
4 Technical principles
5 Technique and insurance contract
6 Technical provisions and the solvency margin
6.1 The technical provisions
6.2 Solvency margin
7 References
8 See also
9 External links
Financial activity
The insurance activity is one of the three pillars of the financial markets, along with the credit or banking market and the stock markets or financial instruments. Their strategic, social and economic importance means that they are subject to strict administrative supervision with their own rules of operation, control and inspection.

Captive insurance company
There are insurers or reinsurers wholly owned by another organization that is generally not insuring or reinsuring. Its main objective is to fully or partially insure the risks of its parent company or business group.

Characteristics of insurance companies
The insurers, in order to be able to face the risks derived from their activity, must have sufficient financial resources and, as a result, the legislation imposes certain restrictions on them.1

Given the convenience of permanence and stability in this sector, legal regulations usually prohibit this activity from being carried out by natural persons.
To guarantee the solvency of the insurance companies, the legislation rejects that these companies can exercise any type of activity other than the insurer.
The exercise of a financial intermediation activity that has to inspire maximum confidence among the insured and investors means that these entities are subject to the protection of the State that submits them to control, both for the start of their activity and development.
Technical principles
The insurance entities must take into account a series of technical principles that allow them to assume the coverage of the risks.


Individualization. It is necessary to define and delimit each one of the existing risks in order to classify them and be able to evaluate and group them.
Accumulation. According to the laws of probability, the greater the risk grouping, the lower are the faults between the theoretical probability and the number of claims. (See Bernouilli's Theorem and the Law of Large Numbers)
Selection of risks. Insurers should only accept risks that by their nature, are presumed to not necessarily cause unbalanced results.
Another basic principle of insurance companies is the distribution or division of risks. The existence of the technical-insurance risk leads the insurer to the need to ensure that the risks assumed under the insurance contracts are homogeneous qualitatively and quantitatively, so that the mutual or compensation principle is met. This can be achieved by distributing them over time (constituting reserves or technical provisions for deviations in the loss ratio in economically favorable or positive years), geographically (only valid when its consequences are not significant), by operating in various lines and insurance modalities (compensating the losses between them), between the insured (through franchises or underinsurance -part of the indemnity is in charge of it-), or between other co-insured companies or reinsurers, or even applying a policy of risk selection adequate
With the possibility of distributing the risks assumed among other insurance and reinsurance companies, the quantitative homogeneity of the same is achieved, easier to control and carried out than qualitative, since it is based on another fundamental principle for the insurance company, the principle of distribution or division of the risks, indicated in a general way previously but that is concrete in that for the company it is preferable (in normal and uniform conditions) to subscribe a great number of contracts with a high insured sum (because in this case the deviations are greater). However, for the reasons stated above, the mere application of this principle is insufficient, given the degree of heterogeneity of the sums insured and the diversity of the risks assumed, and also can not be generalized to all companies, since it will also depend on the volume of the business, of its assets, of the amount or amount of reserves or technical provisions established, and of the control (reduction of deviations) of its technical-insurance risk in definitive.

Technical and insurance contract
From an economic and financial point of view, insurance companies are financial intermediaries, which issue insurance policies or contracts as a specific financial asset, obtaining financing through the collection of the price or insurance premium, and constitute the appropriate reserves or technical provisions (operations passive) pending the payment of compensation or guaranteed benefit (insured sum), either because the damage or loss has been compensated (loss) according to the contract signed, or because its possible occurrence is estimated by methods and actuarial procedures.

The insurance technique is based on the advance payment of the resources that are invested in the long term, fixing the special reserves, the so-called technical provisions, which guarantee, when harmful events occur, the payment of compensation for loss. The aforementioned reserves or technical provisions are invested by the insurance companies normally in real assets (real estate) or in other financial assets (securities or transferable securities, active operations).

By the Insurance Contract, the Insurer or Insurance Company, upon receiving a premium for payment, is obliged to indemnify the Insured as agreed, if the expected event becomes. All this must be clearly established between the Insured and the Insurance Company in a policy or contract.

The technical provisions and the solvency margin
The technical provisions
The technical provisions are those provisions that are derived immediately from the insurance contracts, because they are formed with a portion of the contributions of the insured and correspond to the future obligation that the insurer has with them. They constitute the most important item in the liabilities of insurance companies.

The basic reason for the technical provisions is based on the need to accrue the income and expenses typical of insurance companies, allocating to each year those that really correspond to it. They guarantee the fulfillment of the commitments assumed by the company and although their functions are different according to the class of provision in question, as a whole, perform the same economic function of strengthening the solvency margin of the company through its perfect constitution and assignment to the specific purpose that each one, in particular, corresponds to.

The insurers have the obligation to establish and maintain at all times sufficient technical provisions for all their activities.

The technical provisions must reflect in the balance sheet of the insurers the amount of the assumed obligations that derive from the insurance and reinsurance contracts. They are constituted by an amount sufficient to guarantee, based on prudent and reasonable criteria, all the obligations derived from the aforementioned contracts, as well as to maintain the necessary stability of the insurance company against random or cyclical oscillations of the accident rate or against possible risks special

Solvency margin
The insurers must have at all times a sufficient solvency margin with respect to all their activities. It will be constituted by the assets of the insurance company free of any foreseeable commitment and with deduction of the intangible elements. The consolidated groups of insurance companies must have at all times, as a solvency margin, an uncompensated consolidated equity sufficient to cover the sum of the legal solvency requirements applicable to each of the group's entities.