Insurance - Industry

MORE ABOUT THE INDUSTRY

• Insurance companies generally make money in two ways:

• From underwriting insurance policies for more than the claims they pay out

• By investing the premiums they receive and earning interest before paying out claims

• During times of high interest rates, the industry tends to earn most profits from the investing side.

• From 1979 to 2003 there were few underwriting profits earned.

• Times of low interest rates compel companies to earn more on the underwriting side of the business.

Underwriting Side of Business (Combined Ratio)

Combined Ratio =  (Net Claims, Commissions & Expenses) / (Net Earned Income)

• Ideally this should be < 100%

• The lower the ratio, the more profitable the underwriting business is