The insurance performance measure: assembling the property and casualty profitability puzzle

Calandro, Joseph; Lane, Scott

doi:10.1108/00251740310496242

Cited by 4 publications

(5 citation statements)

References 3 publications

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“…The overall decline in risk‐adjusted performance after 1982, which is illustrated in Figure 2, was discussed by Calandro and Lane (2003) and generally appears to be the result of an underwriting and investment strategy shift in the P&C industry.…”

Section: Notesmentioning

confidence: 98%

“…Despite this basic assessment of underwriting profit/loss, insurance economics holds that an underwriting loss can create value so long as the extent of the loss is less than market rates for money. In other words, a modest underwriting loss can be considered analogous to a low‐cost loan (Calandro and Lane, 2003). This dynamic can be captured by simply adjusting 100 percent by the risk‐free rate of interest as shown below: Equation 4 As can be seen, the cost of float is structurally differential in that a performance metric, the underwriting ratio, is compared with a target, 100 percent plus the risk‐free rate of interest.…”

Section: Risk‐adjusting the Cost Of Floatmentioning

confidence: 99%

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A practical approach for risk‐adjusting performance

Calandro

Lane

Dasari³

2008

Measuring Business Excellence

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PurposeRisk management has grown increasingly popular in recent years due to the recognition that risk should be as actively managed as performance. A key objective of risk management is to evaluate performance in the context of the relative volatility in which business operations are undertaken. However, accomplishing this has generally proven difficult. This paper aims to present a practical approach for risk‐adjusting performance.Design/methodology/approachThis paper presents a practical risk‐adjustment methodology that is based on a popular statistical measure. The utility of the approach is demonstrated in two practical examples: the first is an industry example and the second is an M&A example.FindingsThe results of the research suggest that the risk‐adjustment approach presented here could become an important part of both performance management and risk management programs.Research implications/limitationsThe approach detailed in this paper facilitates the practical risk‐adjustment of select performance measures and risk measures. As this is an introductory paper, further research could be conducted on the specifics of the risk‐adjustment process as well as the strategic context in which measures are risk‐adjusted.Originality/valueThis paper introduces a practical approach of risk‐adjusting performance that was inspired by a popular statistical measure, which is demonstrated in two practical examples.

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Section: Notesmentioning

confidence: 98%

Section: Risk‐adjusting the Cost Of Floatmentioning

confidence: 99%

A practical approach for risk‐adjusting performance

Calandro

Lane

Dasari³

2008

Measuring Business Excellence

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“…Our research follows that conducted for the Insurance Performance Measure (IPM) (Calandro and Lane, 2003), which is an insurance economic profit measure. The modern economic profit literature essentially began with Fruhan (1979) who identified three drivers of shareholder value (or value drivers): profit, growth, and the advantage horizon, which is the amount of time profitable growth can be sustained.…”

Section: About the Researchmentioning

confidence: 99%

“…Given the high level of competitive risk in the P&C industry we have found it useful to compare a P&C segment's current gross underwriting profit and expected premium growth to its relative level of profitability over time as measured by the weighted average cost of float (Calandro and Lane, 2003). Doing so adjusts the expected benefits of gross underwriting profit and growth by the relative competitive risk of pursuing those benefits.…”

Section: Underwriting Returnmentioning

confidence: 99%

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Premium growth, underwriting return and segment analysis

Calandro

Flynn²

2005

Measuring Business Excellence

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PurposeMany insurance companies vigorously pursue top‐line growth, even though it has the potential to develop unprofitably over time. The time lag (or tail) between when insurance is sold and when claims are paid generates risks unique to insurance companies. Furthermore, the insurance market is both mature and efficient (i.e. its level of competitive risk is very high), which means that profitable opportunities are both rare and untenable unless protected by competitive advantage. There is currently no practical measure available (of which the authors are aware) at the business unit level to evaluate insurance premium growth in the face of the industry's risks, impairing executives' ability to assess segment opportunities (and hazards), thus hampering strategic decision making. The purpose of this paper is to introduce a practical measure developed by the authors called Underwriting Return (UWR) which aims at helping to alleviate this situation.Design/methodology/approachThe paper introduces UWR which was developed during the course and scope of the authors' work in the insurance industry, and their research into applying value‐based management to that industry.FindingsThe paper finds that UWR is a practical measure that property and casualty executives can use at the business unit level to help quantify market segments to grow, hold, harvest and abandon.Originality/valueA variety of strategic analysis tools, such as the popular Boston Consulting Group matrix, are utilized today. In general, the application of such tools is hampered by an imprecision of measurement but each can add a level of insight to executives' resource allocation options. UWR can further aid insurance executives in strategic analysis by helping to quantify in which segments to compete, and which ones to abandon. The paper demonstrates the utility of the measure in an example based on an actual analysis.

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Simplex representation of insurance performance analysis

Bharathkumar¹,

Gupta

2020

Journal of Policy Modeling

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The insurance performance measure: assembling the property and casualty profitability puzzle

Cited by 4 publications

References 3 publications

A practical approach for risk‐adjusting performance

A practical approach for risk‐adjusting performance

Premium growth, underwriting return and segment analysis

Simplex representation of insurance performance analysis

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