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The Insurance Performance Measure: Bringing Value to the Insurance Industry

6 Pages Posted: 10 Aug 2005  

Joseph Calandro Jr.

Fordham University - Gabelli Center for Global Security Analysis

Scott Lane

Quinnipiac University; Quinnipiac University

Abstract

The performance of the property and casualty (P&C) insurance industry has suffered in past years. Part of the industry's difficulties stems from its focus on premium generation, as measured by the combined or underwriting ratio, at the expense of overall operational performance. In this regard, the underwriting ratio is an incomplete measure of operating performance since it ignores two critical P&C operational functions: the investment return and reinsurance results.

In this paper we present the Insurance Performance Measure (IPM), a comprehensive performance metric for the P&C industry. The IPM captures the three critical operational functions mentioned above in an overall performance measure. The measure is versatile in that it can be easily decomposed into critical value drivers in each area of operation. Thus, the IPM framework enables P&C managers to observe the interaction and trade-offs between the operational functions of premium generation, investment return and reinsurance results separately or as a group, and as they relate to the opportunity cost of policyholders' surplus.

Keywords: insurance, economic profit, value based management

JEL Classification: G22, G30, M21

Suggested Citation

Calandro, Joseph and Lane, Scott, The Insurance Performance Measure: Bringing Value to the Insurance Industry. Journal of Applied Corporate Finance, Vol. 14, No. 4, pp. 94-99, 2002. Available at SSRN: https://ssrn.com/abstract=771765

Joseph Calandro Jr. (Contact Author)

Fordham University - Gabelli Center for Global Security Analysis ( email )

531 Hughes Hall
441 E. Fordham Rd
Bronx, NY 10458
United States

HOME PAGE: http://www.linkedin.com/in/josephcalandro/

Scott Lane

Quinnipiac University ( email )

Mount Carmel Ave
Hamden, CT
United States
(203) 582-8367 (Phone)

Quinnipiac University ( email )

United States
2035828367 (Phone)
2035828367 (Fax)

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