Insurance Profits: Keeping Score

This paper describes an accounting system designed to take investment income from insurance float into account when evaluating insurance operations. It makes use of data contained in the annual statement to estimate premium, lore, and expense cash flows. It discusses the use of a risk free asset portfolio for estimating the investment income that can be earned from insurance float. This investment income is used in evaluating the performance of insurance operations. The paper suggests that the difference between earnings from risk free assets and l ctua1 assets is the reward for the financial intermediary role of insurance companies. Thus this difference should be the basis for evaluating the performance of insurance company investment operations. The paper also presents data on the development of industry paid losses in past years. The data indicates that these payment patterns have been quite stable over the years. 131s~ presented is the difference in loss payment patterns and average payment dates between incurred losses and for loss reserves. CI method is developed that can be used in many circumstances for estimating the investment income that can be earned from loss payment patterns where the only information available is incurred losses and loss reserves. Such a situation occurs in statutory data by line and state where only such information is available.