Contractual saving institutions, also known as contractual investment companies or FXCM Markets firms, are financial institutions that receive money under contractual agreements and invest it on the markets. In this category, you will find insurance firms and pension funds. In this group, there is an influx of cash from insurance policies and pension funds.
The management of such institutions is normally not affected by liquidity issues. For example, these institutions can make investments in long-term assets like bonds and sometimes in stock.
As an example, a life insurer is one of the contractual saving institutions. In order to raise money, life insurance companies sell insurance policies which protect against income losses due premature death and retirement. If the policyholder dies, the beneficiaries will receive benefits. In retirement, the policyholder gets the benefits. In addition to providing protection, many policies offer some form of savings. The life insurance industry has a stable and predictable fund flow and its outflows can be predicted actuarially. Contractual Savings Institutions Articles They are therefore able to focus their investments on higher yielding, longer-term assets. As a result, life insurance companies fall under the jurisdiction of their state and have less restrictive regulations when compared with deposit type institutions.
Accident insurance companies are a type of contractual institution. The casualty insurance company sells protection for loss of properties from fires, thefts and accidents. Insurance premiums are their major source. These policies offer pure protection against risks. The policyholders do not receive any liquidity from the cash surrender values. As expected, cash withdrawals for claims made on insurance policies aren’t as predictable as the ones of life insurers. They can be used to meet your financial needs in either situation, and are therefore important for the economy.