Insurance Company Growth

The availability of surplus sometimes constrains the growth of an insurance company. To optimize growth, a company under such constraint must develop equivalent profit standards for all opportunities that use surplus, such as sales of insurance products, acquisition of investments, or development of a sales force. This paper defines a concept of equivalence for profit standards. Microeconomic theory provides a technical setting for the definition of profit equivalence, using the concepts of marginal profitability and marginal use of surplus. The central principle advanced is that the company should set prices on all its products to produce marginal profits that are equal in proportion to the products' marginal use of surplus. After considering technical and practical problems in the application of this principle, the paper touches on questions of equity. A new equity principle is proposed for debate. Profit Factor/Rate of Return/Risk