Actuarial Valuation of Property/Casualty Insurance Companies

There has been a surge of insurance company acquisition and merger activity in the United States and Europe in recent years. Most of this activity has been in the life insurance area, but the pace of property/casualty activity has picked up recently, and there are predictions of heavy future activity. The bibliography following this paper is not an exhaustive list of readings on the subject of actuarial valuations of insurance companies, but it represents an impressive library of actuarial readings on the subject of life company valuations. However, there is scant actuarial literature on the subject of casualty company valuations, and such discussions are absent from our Proceedings. Evidence of the interest in this topic is the fact that the 21st International Congress of Actuaries held in June of 1980 had as its Topic 4, “Estimating the Value of Insurance Companies and Portfolios,” with thirty papers presented. In his introductory remarks, J.B.R. Lieberman suggested three general points for discussion. One of the three was: “How are non-life (property/casualty) insurance companies and portfolios valued in practice?” None of the thirty papers presented dealt specifically with property/casualty companies and, in spite of Mr. Lieberman’s suggestion, the discussion was confined essentially to the life insurance business. Accordingly, this paper is intended to set forth a basic method for the actuarial valuation of property/casualty companies.