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An Overview of Insurance Companies Sector in the U.K

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The study is about the performance analysis of insurance sector of Pakistan. Financial safety is not stable in todays world. It does not matter how big earnings we have for a month or how huge savings we have there are often situations beyond our expectations or control. We cannot make us safe completely. This is why we need to take all the safety measures to secure our financial state and our lives as well. And to do this the best way is to have insurance. Insurance can be the best safe measure for the financial losses and the loss of life. Even if anybody has huge savings secure in a safe place there can always be some type of catastrophe that can pull out all of the savings. In such kind of situations insurance can only be the security measure that makes anybody safe and secure. When a contract is made with an insurance company that contract is called insurance policy

Insurance is basically a transfer of risk for transferring the risk on the company in return insurer must pay some agreed amount called the premium. A company may cover all the loss or some part of it depending upon the policy.

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Insurance companies distribute their products through intermediaries or directly. Insurance agents (who can be tied, multi-tied or independent) are, in general, licensed to conduct business on behalf of insurance companies. At the other hand insurance brokers work for the policyholder in the insurance process and act on behalf of the client. Bancassurance generally refers to the provision for insurance services sold by banks

In Direct insurance, insurance covers are sold without the intervention of an intermediary. Insurance distribution mix, as well as brokers' market share, varies significantly in different business sectors and geographic regions. This paper focuses on brokers in Europe, particularly on the commercial non-life brokerage and on the six largest European markets. Insurance mediation has very long history and is highly regulated and multidimensional activity. The European Union passed a directive on insurance intermediation in 2002 that led to new legislation in all EU states. Insurance intermediaries reduce search and transaction costs. They also reduce information asymmetry between insurers and buyers. Brokers are compensated for their services through commissions and fees. Commissions can be premium-based (expressed as a percentage of the premium paid for each policy) and contingent commissions (usually based on the profitability and/or volume of the business placed with the insurer). Contingent commissions have been seen as controversial which provoked the famous Spitzer investigation in 2004 against the worlds' largest brokerages. Brokers receive fees for particular services such as risk management, claims settlement, captive management, risk modeling... Successful brokers also receive non-cash compensation from insurance companies such as travel and vacation awards in recognition of superior performance. Brokers' profitability depends on underwriting cycle, although it is less volatile than insurers' profitability.

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Subjective bonuses are highly related to the extent to which achieving the bonus target could be difficult and besides, could lead to considerable consequences should the organization fail to meet the target

They are also positively related to an operating loss. Subjective bonuses also contribute positively towards productivity, profitability as well as pay satisfaction. Its benefits are greater than the manager’s tenure since it improves incentive contracting. This implies that insurance coverage would help improve the performance of managers within the company. The localized nature of certain BP’s tax liabilities has some potential tax-related benefits that come from insurance. According to Andrews (2006) insurance coverage may cause royalty relief meant to motivate the production of more oil and gas. Tax-related benefits are usually determined by laws and regulations. Captive insurance firms also offer tax planning via captive tax-planning tools. By using these instruments they shift the profits from high-tax areas to low-tax. This profit Shift to a high-tax jurisdiction could as well be as a consequence of tax advantages. In the high-tax jurisdiction, deductibility is not allowed since payments are not considered as expenses for tax. The expense is considered extremely high while transfer pricing becomes paramount. Tax authorities usually reason that insurance premiums normally paid to insurance companies are per nondeductible since inter-company transfers are not included in expenses in a fiscal sense.

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As can be seen, the insurance companies offer a comprehensive range of insurance plans

The most common types include: term life policies, endowment policies, joint life policies, whole life policies, loan cover term assurance policies, unit-linked insurance plans, group insurance policies, pension plans, and annuities. General insurance plans are also available to cover motor insurance, home insurance, travel insurance and health insurance. Due to the growing demand for insurance, more and more insurance companies are now emerging insurance sector all over the world. With the opening up of the economy, several international leaders in the insurance sector are trying to venture into the insurance industry.

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Andrews, E., L., February 14, 2006, US royalty plan to give a windfall to oil companies. New York: New York Times. Web.

Danielsson, J., & Keating C., 2011, valuing insurers’ liabilities during crises: What EU policy markers should not do. Web.

Doherty, N., A., & Smith, C., W., 2003, Corporate insurance strategy: The case of British Petroleum. In Chew, D., H., & Stern, J., M., 2003, The revolution of corporate finance, 4th ed. New Jersey: Wiley-Blackwell Publishers. pp. 403 – 413.

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