Summary |
In such a wide ranging subject as profit planning it is not possible in this paper to do more than comment briefly on the more important aspects. It will, however, serve as a basis for discussion at the seminar and also be an introduction to the more detailed papers on the technical aspects of reinsurance with will follow.
The objective of the financial planner of direct writing insurance company is to arrive at the optimum profit situation with the aim of meeting the dividend aspirations of the shareholders and also maintaining the value in real terms of the shareholders’ found. As will be demonstrated later, the company will probably have to accept that it will be unable to do more than maintain the real value of a predetermined solvency margin – such as 35% - since the possibility of self-financing a much higher level out of after-tax profits when inflation is running at high levels is remote.
In this paper the term “insurance profit” is used and it means the sum of the underwriting profit/loss and the earnings obtained from the pool of premiums subscribed by the policyholders. This requires that the investments representing the shareholders’ funds should be specifically earmarked so that the interest earnings from the insurance business itself can be ascertained. The true earnings of the insurance operation can then be clearly seen. It also enables separate investment policies to be devised for both shareholders and the insurance funds.
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