Introduction to the Discounted Cash Flow Approach

Chapter 3

The property-liability insurance industry has moved, by choice or otherwise, from a time when there was general agreement on a standard profit margin as a percentage of premium to a time when it is difficult to know what the profit margin truly is or should be. That we have not yet arrived at a point where there is a new consensus should be obvious, for then this book would not be necessary. This chapter aims to provide a simple introduction to the concept of discounted cash flow analysis, which is widely accepted in the field of finance as the proper approach in a variety of applications.