This paper is a continuation of Assignment 1. (Assignment 1 was about the Insurance Industry)** I will attached Assignment 1) Assume that the industry you wrote about in Assignment 1 wants to expand and that its only option is a merger. Now the industry is confronted with government regulations to oversee the merger. Write a four to five (4–5) page paper in which you: Your assignment must follow these formatting requirements: 1. Explain why government regulation is needed, citing the major reasons for government involvement in a market economy. 2. Justify the rationale for the intervention of government in the market process in the U.S. 3. Assuming that the merger faces some threats and that the industry decides on self-expansion as an alternative strategy, describe the additional complexities that would arise under this new scenario of expansion via capital projects. 4. Analyze how the different forces will come together to create a convergence between the interests of stockholders and managers. 5. Speculate about the implications for the goals of the firm as to whether to maximize the industry’s profits or to create more value for the shareholders. 6. Use at least three (3) high-quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources. Assignment 1: Market Model Patterns of Change XXXXXXXXXXLana Slocombe 4/29/ XXXXXXXXXXECO 550 [Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.] XXXXXXXXXXInsurance is a way to manage risk mainly used if there is an unexpected or uncertain loss. This is done by relocating the risk of loss from one person to another in a form of a payment. An insurer is a corporation selling the insurance and the insured or policyholder, is the person business that has acquired the insurance policy. When these two parties come to the agreement, the insured provides them their risk payout if needed, and then the policy holder is required to pay a premium for the insurance coverage. This industry is considered an oligopoly. There are some main characteristics of insurance reliability, protection, subrogation, donation, insurance interest, and proximate cause (Irish, XXXXXXXXXXReliability is an important quality for an insurance to portray. As a customer it is his/ her responsibility to disclose all material specific information to the risk being sheltered. Upholding the agreement to what the insurance will recognize on what will be covered under the policy. As a supplement the insurance should assure protection. On the occurrence of an event insured against, the Insured will be located in the same financial position that he/she occupied at once before the event captivating place. In the incident of a claim the insured must prove that the incident occurred, prove that a financial loss has took place, and Relocate any rights which he/she may have for recuperation from another foundation to the Insurer, if he/she has been completely indemnified. Subrogation another characteristic where the insurance company tries to recoup expenses for a claim it paid out when another party should have been responsible for paying at least a portion of that claim. In the circumstance of insurance subrogation is a characteristic of the standard of indemnity and therefore only be appropriated to do the agreements of indemnity so insured getting better more than the indemnity he obtain under his insurance (where that symbolize the full amount of his loss) and facilitates his insurer to recover or decrease its loss (Irish, XXXXXXXXXXAnother characteristic of an insurance company is donation. The right of an insurer to call on other insurers equally, but not essentially uniformly, accountable to the similar insured to part of the loss of an indemnity imbursement i.e. a travel policy may have partly cover covered with the inside section of a household policy. The main principles of donation permit the insured to make a claim adjacent to one insurer who then has the right to call on any other insurers legally responsible for the loss to divide the claim imbursement (Irish, XXXXXXXXXXThe insurance company also has insurable interest. If an insured requirements to implement an agreement of insurance before the Courts he must have an insurable interest in the subject to the insurance, which is to say publicly that he position to benefit from its protection and will experience from its loss. In non-marine insurances, the insured must have insurable interest when the strategy is taken out and also at the date of loss giving augment to a declare under the strategy (Irish, XXXXXXXXXXLast but not least the last characteristic is the proximate case. An insurer will only be answerable to pay a claim under an insurance agreement if the loss that gives rise to the claim was proximately caused by an insured danger. This means that the loss must be unswervingly credited to an insured threat without any smash in the chain of causation (Irish, XXXXXXXXXXAfter looking at the characteristics that make an insurance company, now let’s look at the industries structure. Insurance companies may be divided into two which are life insurance companies, which sell life insurance, annuity and pension’s foodstuffs and Non-life, general, or property/casualty insurance companies, which sell other types of insurance. General insurance companies can be further classified into sub groups, standard lines and excess lines (CityUK XXXXXXXXXXIn most nations, life and non-life insurers are topic to dissimilar regulatory command and different tax and accounting system. The major cause for the difference between the two categories of corporation is that life, allowance, and pension business is very long-run by character — coverage for life assurance or a pension can wrap risks over many decades. By difference, non-life insurance wrap typically wrap a shorter age, such as one year. The main principle of the insurance commerce is the dispersion of risks. Because the risks associated with different strategies are not completely correlated, the whole risk of a portfolio of strategy is lesser than the addition of the policies’ risks. Thus, insurance object as an apparatus to expand PC and LH risks, like to the position of mutual funds in diversifying investment risks. In statistics, because insurers accrue substantial funds in thoughtful out their business, they also enlarge investment risks for their shareholders by investing in branching out portfolios. The performances of insurance companies comprise certain insurance strategies (including dominant the suitability of risks, the coverage terms, and the premium), billing and gathering premiums, and investigating and resolving claims made under strategies. Other behavior includes investing the build up funds and organization the assortment. Investing behaviors are chiefly important for LH insurers; for many LH insurers, the spread between the return on investments and the interest cost of insurance liabilities is the main foundation of income. Investment income is also significant for PC insurers. PC insurers build up considerable funds due to the time gap between the receiving of premium and imbursement of claims, and they invest and supervise these funds to produce investment income. This income donates to wages and so influences the pricing of insurance strategies. The time difference between the receiving of premiums and payment of claims, which generates the commonly known as float, consists of four mechanisms. The primary is the time gap between the receiving of premium and the happening of insured actions (CityUK XXXXXXXXXXIn most luggage this part is comparatively small, because the duration of PC policies is typically short, six-months to a year. This constituent of the float is reproducing in the financial declaration in the equilibrium of the unearned premium responsibility. The other three mechanisms, which diverge in significance across PC lines, narrate to the difference between the happening of insured actions and the following payments. Some insured losses are uncovered many years after the occasion (e.g., introduction to asbestos), and in many cases the claim completion process expand over more than a few years (e.g., medical malpractice litigation). Also, in some cases insurance payments are made over comprehensive periods of time (e.g., workers’ recompense). These three mechanisms of the float are reproduced in the financial statements in the equilibrium of the set aside for losses and loss alteration operating cost, which insurers are necessary to accumulate when insured events happen. Accordingly, the examination of the float often meeting point on undeserved premium (first source of float) and, essentially, the defeat set aside (other three foundation of float). PC agreements engage greater doubt than LH agreements because both the occurrence and degree of PC claims are more unpredictable than LH claims. PC losses are extremely responsive to disastrous events such as hurricanes, earthquakes and terrorism acts, events which characteristically have inadequate effect on LH claims. Again, the required imbursement for PC insurance claims depends on the insured’s loss (subject to limits); while for LH insurance it is often the face value of the strategy. Because PC reserves involve greater indecision than LH accountability, PC insurers grasp superior equity mitigates and usually invest in not as much of risky assets as compared to LH insurers. They also reinsure important segments of their contact, issue insurance-linked securities, and assemble contingent capital facilities. Again, because the timing of PC claim expenditure is less expected and usually more rapidly than that of LH benefit payments, PC insurers spend in more liquid and shorter maturity (and therefore less interest rate sensitive) possessions, chiefly securities. In difference, LH insurers often invest important amounts in long run mortgages and risky securities. Some insurers get hold of frugality or banking charters and use the charters to cross-sell connected products to insurance clients. LH insurers often use frugality or banking charters to provide trust services which balance life insurance and departure and estate preparation activities. For instance, life insurance strategy can be used to finance trusts, retirement funds may be straight put down into checking accounts, and diploma of deposit may be included into asset diversification tactics for retirement or estate planning rationale. PC insurers use frugality or banking contract for retail behavior such as home mortgages and auto loans, which balance the auto and proprietor lines of insurance obtainable. Insurance corporations are also divided based on their shape of possession, where the main forms are store and mutual companies. Mutual insurers, which are possessed by their contributed policyholders, can concern debentures and comparable financial apparatus but not ordinary stock. Shareholder companies are possess by shareholders and can subject debentures, common stock and a wide variety of related financial instruments. Most insurers are share companies. A comparatively original, hybrid manifestation of possession involves a mutual company switch into a mutual holding company with a supplementary stock company that can issue share to the public. This appearance of ownership is allowable in only some situation and is unusual. Two instances are Liberty Mutual Holding Company (PC) and Pacific Mutual Holding Company (LH) (Nissim, XXXXXXXXXXInternational comparisons Global insurance premiums produce by 2.7% in inflation-adjusted terms in 2010 to $4.3 trillion, mountaineering above pre-crisis stages. The return to enlargement and record premiums produce during the year go at the back two years of turn down in real terms. Life insurance premiums augmented by 3.2% in 2010 and non-life premiums by 2.1%. While industrialized countries saw an augment in premium of around 1.4%, insurance markets in emerging economies saw speedy development with 11% growth in premium income. The worldwide insurance industry was adequately capitalized to endure the financial disaster of 2008 and 2009 and most insurance companies reinstate their capital to pre-crisis levels by the end of 2010. With the continuance of the slow recovery of the worldwide economy, it is probable the insurance industry will carry on seeing enlargement in premium income both in industrialized countries and budding markets in XXXXXXXXXXGlobal insurance premiums produce by 2.7% in inflation-adjusted terms in 2010 to $4.3 trillion, mountaineering above pre-crisis stages. The revisit to growth and record premiums produce during the year followed two years of decline in real circumstances. Life insurance premiums increased by 3.2% and non-life premiums by 2.1%. While industrialized nations saw an augment in premiums of around 1.4%, insurance markets in growing economies saw fast development with 11% growth in premium income during the year. This was mostly a consequence of the faster pace of economic development in emerging market countries and increasing goods prices. The global insurance industry was sufficiently capitalized to withstand the financial disaster of 2008 and 2009 and most insurance companies restore their capital to pre-crisis stage by the end of 2010. With the continuance of the steady revival of the worldwide economy, it is likely the insurance industry will persist to see development in premium income both in industrialized nations and emerging marketplace in 2011.The insurance industry is uncovered to the economic recession on the assets side by a turn down in returns on investments and on the accountability side by a increase in claims. So far the amount of losses on both sides has been incomplete and the insurance sector was adequately capitalized to endure the financial disaster. The enormous preponderance of insurance company had enough assets to soak up losses with the exemption of a small number of US and European companies which necessary financial aid from government at the onset of the disaster. In most cases the companies that twisted to government for hold up were those where the center insurance business was joint with banking process or financial assurance business. Unlike many other institutional group of actors in the financial markets, insurers are not countenance to the same degree with the risk of funds being reserved. They also employ less influence than banks and have longer-term liability and investments (Global, XXXXXXXXXXInsurance markets are extremely competitive both as to price and repair. In the PC sub-industry, a large number of insurers sell comparatively homogenous goods. There are self-effacing barriers to entry, minimal economies of scale, and low levels of market attentiveness (e.g., Cummins and Weiss XXXXXXXXXXUsually, no single company or group of companies dominates the market, and attentiveness metrics such as the Herfindahl Index are comparatively low. For instance, according to the Insurance Services Office (ISO), the Herfindahl Index for PC insurers was 357 in 2008, considerably smaller than the 1,000 cut-off below which an industry is measured unconcentrated by the US Department of Justice. Competition in the LH sub-industry is also strong though, compared to PC insurance, LH products are usually less homogenous and there are fewer LH insurance companies. Unlike PC insurers, which compete chiefly within the manufacturing, LH insurers also struggle with banks and other financial institutions. This is particularly true for changeable annuities, investment goods, and asset management. The insurance industry is synchronized at the state level, and there is important difference in regulation across states. In common, competition is less strong and attentiveness levels are higher in severely regulated markets. The ordinary explanation for this association is that instruction reasons some insurers to take out from marketplaces with inflexible regulation. However, research proposes that the negative association between rivalry and regulation is due in fraction to overturn causation, that is, state legislators enact severe regulation in reply to condensed competition. Insurers struggle for business on the foundation of price, financial force, ease of use of coverage desired by patrons (servicing specific customer groups or requirements, or offering a degree of customization that is of value to the insured), and excellence of repair, including the excellence of the claim alteration service (Global XXXXXXXXXXReferences: CityUK Partnering Prosperity XXXXXXXXXXRetrieved April 2012 From: http://www.thecityuk.com/assets/Uploads/Insurance-2011-F2.pdf Global Industry Statistics. Retrieved April 2012 From: http://www.bimaonline.com/cgi-bin/statistics/global.asp Irish Brokers Association. Insurance Principles Retrieved April 2012 From: https://www.iba.ie/development2009/index.php?option=com_content&view=article&id=76&Itemid=167 Nissim, Doron XXXXXXXXXXAnalysis and Valuation of Insurance Companies. Retrieved April 2012 From:http://www.columbia.edu/~dn75/Analysis%20and%20Valuation%20of%20Insurance%20Companies%20-%20Final.pdf