How Does a Dealer Reinsurance Company Make Money?
F&I production feeds the system. Claims determine much of the underwriting result. Fees reduce it. Investments can compound it. Time magnifies it.
There are two primary economic engines.
1. Underwriting Profit
In simplified form:
Suppose the reinsurance company has $2 million of earned premium and claims plus applicable expenses total $1.3 million. The simplified favorable underwriting result is:
2. Investment Income
Insurance reserves may remain invested while contracts mature and claims develop.
If a reinsurance company has $5 million of invested assets and hypothetically earns 4%, that represents approximately $200,000 of annual investment return before applicable fees, expenses and taxes.
Over decades, compounding can become meaningful.
What Reduces the Economics?
Volume and Time Matter
A dealer ceding 5,000 contracts annually has a very different opportunity from a dealer ceding 500.
And a dealer consistently producing profitable business for twenty years has a very different asset from a dealer looking only at one year's results.
The Bottom Line
The basic formula is:
When was the last time someone independently reviewed your reinsurance program?
Confidential. No obligation. There is no charge for the initial assessment. You may discover an opportunity, a problem, or that your program is exactly where it should be. But you’ll know.