Life Insurance

Life insurance key figures explained

There are certain key figures and measures to look at when analysing the life insurance operations. The figures are related to the income statement, balance sheet or risk measures or combinations of these. The most important key figures to look at are presented in the table and explained in detail below.

What is the size and result of the business?

Insurance premiums written

• Represents the gross premiums written (i.e. the money received from insurance and investment contracts during the financial year) before the part of premiums that is attributable to reinsured policies is deducted (policies refer to policies, whose risk is transferred to other insurers).

Profit before taxes

• Profit before taxes is the remainder after deducting all operating expenses from income. It gives an idea of how large the expenses are compared to the income and how profitable the business operations are.

Expense ratio

• Expense ratio measures the efficiency of the life insurance operations. It measures the operating expenses and claims settlement expenses in relation to expense charge, which is a calculated allowance covering the expenses of running the insurance business. See calculation formula

Average number of staff

• The average number of staff is calculated as an average of month-end figures and is adjusted for part-time staff (full time equivalent).

How much capital does the business require in relation to the risks taken?

Economic capital (EC)

• Economic capital is an internal measure in Sampo which describes the capital required in the Group in order to bear different kinds of risks. Economic capital is defined by risk categories and it is formed mainly from market, credit and insurance risks. Also operational and business risks affect the size of economic capital. Economic capital reflects not only the amount of the different kinds of risks but also their mutual diversification effect (all risks do not occur simultaneously, so the total risk is somewhat less than the sum of the individual risks).

How much capital is required by the regulators?

Solvency capital

• Solvency capital is a measure used to assess an insurance company's ability in fulfilling its liabilities to the policyholders. Solvency capital tells us the size of the free reserves that can be used to cover unexpected losses arising from the insurance or investment operations. The supervising authorities set minimum requirements for the solvency capital. See calculation formula

Solvency ratio, % of technical provisions

• Solvency capital can also be expressed as a percentage of the technical provisions (liabilities related to insurance contracts, i.e. the value set aside to cover expected obligations arising on a book of insurance policies). See calculation formula

What is the return in relation to invested capital?

Return on equity (RoE)

• Return on equity (RoE) indicates how much return the company is able to generate for the money shareholders have invested in it (simplified general formula: profit after tax / average equity during the year). The more liabilities the company has relative to equity, the more volatile RoE is to variations in profit. The RoE is also useful for comparing the profitability of different firms in the same industry. See calculation formula