6. Value of insurance companies

The valuation of an insurance company depends on changes in its expected cash flows, CFCF, and changes in the required rate of return by investors, kk.

Mathematically, the value of an insurance company can be modeled using which of the following?

(V)=f[E(CF),k]V=f[E(CF),k]

(V)=f[ECF,k]V=f[ECF,k]

(V)=f[E(CF)/k]V=f[E(CF)/k]

(V)=f[k/E(CF)]V=f[k/E(CF)]

Which of the following are true regarding factors that affect an insurance companys cash flows? Check all that apply.

Management skills and abilities do not impact cash flows of insurance companies.

The payouts on insurance claims are somewhat stable for most property and casualty (PC) claims for most PC companies, relative to payouts on life insurance claims for life insurance companies.

A recession will most likely decrease an insurance companys cash flows.

Insurance regulation, technology, and competition have a significant impact on an insurance companys cash flows.

Insurance Company	Liquidity Ratio
	(percent)
Pathway Insurers	99
Enscomp	77
Stillery, Inc.	88
Williams Insurance	90
Rushing, Inc.	81

Based solely on liquidity, which insurance company is the most capable of servicing its short-term financial obligations?

Pathway Insurers

The Rushing, Inc.

Stillery, Inc.

Enscomp

Williams Insurance