P&C Insurance

P&C Insurance key figures explained

There are certain key figures and measures to look at when analysing the Property & Casualty 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?

Gross premiums written

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

Premiums earned

• Premiums written adjusted for changes in the provision for unearned premiums. Premiums earned represent the amount of premiums that are attributable to the financial year.
• The insurance cover in policies written during the year can span further than the end of the financial year. For such policies only the part of the premium corresponding to the part of the insurance cover during the financial year can be attributed to the financial year. The part of the premiums written that is attributable to insurance cover during forthcoming years is activated as the provision for unearned premiums (included in the balance sheet item ‘liabilities for insurance contracts').

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.

Risk ratio

• Risk ratio measures how much the incurred claims (excluding claims settlement expenses) are in relation to the premiums. It shows how well the insurance company has succeeded in pricing the insurance risk . The lower the ratio the better. See calculation formula

Cost ratio

• Cost ratio tells us how large portion of the premiums earned is needed to cover the expenses of the insurance business. It is thus a measure of the efficiency of the insurance company's operations. Lower cost ratio is of course better. See calculation formula

Loss ratio (or claims ratio)

• Loss ratio is (like risk ratio) a measure of how well the insurance company has succeeded in pricing the insurance risk. Here the claims incurred include also claims settlement expenses. See calculation formula

Expense ratio

• Expense ratio measures the efficiency of other operations than the claims settlement operations of the insurance company. See calculation formula

Combined ratio

• Combined Ratio is calculated, as its name suggests, as a combination of the loss ratio and expense ratio (or a combination of the risk ratio and the cost ratio). See calculation formula
  
• The lower the combined ratio is the better. This is particularly important in an environment where low interest rates prevail.

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 margin

• Solvency margin is a measurement used to assess an insurance company's ability in fulfilling its liabilities to the policyholders. Solvency margin 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 margin. See calculation formula

Solvency ratio %

• Solvency  ratio % shows the amount of solvency capital in relation to premiums earned from the last 12 months. 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