Question

Which two assumptions do insurers make with regard to interest?

Answer 1

Insurance companies make two assumptions with regard to interest: investment income can cover claims and costs, and it leaves room for profits.

Step-by-step explanation:

Insurance companies make two assumptions with regard to interest:

1. They assume that the investment income earned on reserves can be used to cover the average person's claims and the costs of running the company.
2. They assume that the interest earned on investments will leave room for the firm's profits.

For example, insurance companies invest the funds they receive from insurance premiums and earn a rate of return from these investments. They typically invest in safe and liquid investments to ensure they can access the funds when needed.