Text 20. Finance and Insurance Institutions

Finance (credit) companies are different from deposit taking banking institutions in that their sources of funds are not deposits. They acquire funds in the market by issuing their own obligations, such as notes and bonds. They make loans, however, on the other side of the balance sheet in full competition with deposit-taking and other types of financial institutions, such as insurance companies.

Finance companies specialize in business inventory financing, although they also make consumer loans, mostly indirectly through manufacturers and distributors of goods and services. Some of the finance companies are huge and operate in domestic as well as foreign markets. Several are bigger than most of the commercial banks in the United States.

Insurance companies provide the dual services of insurance protection and investment. There are two types of insurance companies: life insurance companies and casualty and property insurance companies. Insurance companies’ sources of funds are primarily policy premiums.

Their uses of funds range from loans (thus competing with finance companies, commercial banks, and savings and loan associations) to creation of investment products (thus competing with investment companies).

Life insurance companies match their certain mortality based needs for cash outflows with longer-term riskier investments such as stocks and bonds. Casualty and property insurance companies have more uncertainty of cash outflows and their timing. Therefore they have more conservative investment policies in terms of maturity and credit risk of their investments in a diversified portfolio of assets.

Exercise 140. Give Ukrainian equivalents.

Finance companies, deposit-taking institutions, sources of funds, balance sheet, business inventory financing, operate in domestic and foreign markets, services of insurance protection and investment, life insurance, casualty and property insurance, cash outflow, maturity, a diversified portfolio of assets.

Exercise 141. Answer the questions.

1. What is the difference between finance (credit) companies and banking institutions? 2. What do finance companies specialise in? 3. What do insurance companies provide? 4. What types of insurance companies are there? 5. How do insurance companies use their funds?

Exercise 142. Complete the sentences with the following words: damage, agent, property, premium, policy, claim, Lloyd’s.

1. If you make a big claim from your insurance company, the cost of your … will probably go up.

2. I lost my job as an … for an insurance company when people stopped buying over the counter.

3. Natural disasters are expensive for insurance companies because they cause a lot of … to buildings and their contents.

4. You should always read the small print - all the details - before you accept an insurance …

5. Most people insure their personal … against loss, fire and theft.

6. … of London is the worlds largest insurance market.

7. Fortunately, I’ve never had a car accident , so I’ve never had to … anything from the insurance company.

Exercise 143. Translate text 21 in writing. Put five key questions to it.