Source of Earnings Analysis for Property-Casualty Insurers

Source of earnings analysis has long been a staple of life insurance policy pricing and profitability monitoring. It has grown in importance with the advent of universal life insurance and of similar contracts with non-guaranteed benefits or charges. SFAS 97 now mandates the use of source of earnings analysis for GAAP reporting of universal life-type contracts. Pricing actuaries sometimes say that their indications are best estimates, and they disclaim responsibility for variances of actual from expected. In truth, analysis of the variances from previous year's' predictions is one of the best means of improving next year's predictions. Source of earnings analysis provides the needed post mortem to rigorously measure the variances in each source of earnings factor.