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.

Text  21. Insurance

Insurance is vital to a free enterprise economy. Insurance is the process of spreading risk of economic loss among as many people or entities as possible who are subject to the same kind of risk; it is based on the laws of probability (chance of a given outcome happening) and large numbers (which enables the laws of probability to work). Society faces many perils (causes of loss)—some natural (e.g., earthquakes, hurricanes, tornados, flood, drought), some human (e.g., arson, theft, fraud, vandalism, contamination, pollution, terrorism), and some economic (e.g. expropriation, inflation, obsolescence, depressions/recessions).

Availability of insurance allows individuals and businesses to purchase policies that provide protection from financial loss attributable to death, accidents, sicknesses, damage to property, and injury caused to others. The person or organization seeking to transfer risk—the insured (policyholder) pays a relatively small amount (the premium) to an insurance company (the insurer), which issues an insurance policy in which the insurer agrees to reimburse the insured for any losses covered by the policy. Insurers are able to provide coverage for virtually any predictable loss.

 

Exercise 144. Number the following words with their underlined equivalents in the text.

affluent	catastrophes	claims
commission	gilts	huge
indemnify	insurance brokers	policy
retires	sums	underwritten

 

Insurance is designed to provide a sum of money to compensate for any damage suffered as the result of a risk that has been insured against in a specific insurance (1) contract, such as fire, accident, theft, loss, damage, injury or death. Thousands of people pay premiums to insurance companies, which use the money to (2) compensate people who suffer loss or damage, etc. Some people also use insurance policies as a way of saving. Life assurance policies, for example, usually pay a certain sum on a specific date - for example, when a person (3) stops working at the age of 60 or 65 or whenever, or earlier if the person dies.

Insurance companies, like pension funds, are large institutional investors that place great (4) amounts of money in various securities: shares, bonds, (5) British government bonds, etc.

Insurance companies generally employ their own agents who sell insurance to customers, but there are also (6) other middlemen who work with several companies, selling insurance in return for a (7) percentage of the premium.

If a particular insurance company considers that the risk it has (8) assumed responsibility for is too big, it might share the business with other companies, by way of reinsurance. Lloyds of London underwrites a great many risks which are spread among lots of syndicates, made up of groups of (9) wealthy people known as "names." In return for earning a percentage of the insurance premiums, the names have unlimited liability for losses. After a series of (10) demands for payment following lots of (11) natural disasters (shipwrecks, earthquakes, hurricanes, and so on) in the late 1980s, many Lloyds syndicates had to make (12) enormous pay-outs, and many names were bankrupted.

Exercise 145. Discuss  the questions.

1. How many insurance policies do you or your family have?

2. Are there any risks you cannot insure yourself against?

3. What insurance does your company/ university/ employer have?

Exercise 146. Change the words in brackets to complete the sentences.

Traveller’s cheques

If you are planning a holiday, remember the (safe) way to carry money is to take traveller’s cheques. If you lose them or they are stolen, (replace) cheques are provided by the bank. Such cheques are (validity) all over the world. Take traveller’s cheques and you can be (certainty) you will not be left without funds. Sterling and dollar cheques are (availability) at most banks. You should be prepared for the worst: take out (insure) to cover any (lose) of luggage, travel delays and medical (expensive). Not all insurance policies cover injuries caused by sporting (active), so check your policy. Some companies have a helpline to provide (assist) and advice, which could be very (value).

Exercise 147 . Learn the following words and word combinations.

fleet	– флот
operating leasing	– оперативний лізинг, прокат
sale/leaseback	– зворотна оренда (взяття продавцем в оренду проданого ним же майна)
finance lease	– капіталізована оренда; оренда фондів; фінансова оренда
export credit loan	– державний експортний кредит, кредит від експортно-кредитного агентства
tax lease	– податковий лізинг
equipment trust certificate	– трастовий сертифікат на обладнання
Islamic finance	– ісламська фінансова справа (особливість: забороняється стягувати проценти, що пояснюється релігійними нормами)
downturn	– спад; зменшення попиту; скорочення обороту
lessor	– той, хто здає в оренду, орендодавець
lease	– здавати (брати) в оренду
lessee	– наймач, орендар
Haj	– Хадж (паломництво до святинь ісламу в Мецці та Медині)
wet lease	– мокрий лізинг (довгострокова оренда повітряного судна з екіпажем, технічним обслуговуванням і страхуванням)
cargo aircraft	– вантажний літак
syndicate a loan	– створювати синдикат для надання позики
equity	– власний капітал
tax breaks	– податкові пільги
depreciation allowance	– податкова знижка на амортизацію
eligible	– який має право
leverage lease	– кредит під заставу зданого в оренду майна і орендних платежів
residual value	– ліквідаційна вартість; залишкова вартість; вартість майна після закінчення строку оренди
special purpose company	– цільова компанія
bond interest	– відсотки по облігаціях
Shariah	– шаріат (сукупність норм, що регулюють поведінку мусульман)
Ijara	– іджара ( в ісламській фінансовій справі: контракт, за яким за дорученням клієнта купує і здає йому в оренду будь-який об’єкт за певну плату, аналог лізингу)

Exercise 148. Read, translate and give the gist of text 22.

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