How Do You Evaluate the Economic Value of a Dealer Reinsurance Company?
Do not value a dealer reinsurance company by looking only at its cash or investment account. The economics are more complicated.
Do not value a dealer reinsurance company by looking only at its cash or investment account.
The economics are more complicated.
Start With the Balance Sheet
Understand:
But balance-sheet surplus is only part of the story.
Examine the Existing Book
Review:
- Premium by product.
- Earned premium.
- Unearned premium.
- Paid claims.
- Incurred claims.
- Loss ratios.
- Claim development.
- Contract vintage.
- Cancellation patterns.
- Remaining duration.
The existing book may still generate future favorable or unfavorable development.
Examine Investment Economics
- How much is invested?
- How is it allocated?
- What returns have been generated?
- What fees are being charged?
- What level of risk exists?
Examine Future Production
If the company will continue receiving business from a dealership, estimate:
That future production can have substantial economic value.
Separate Assets From Earnings Power
Two reinsurance companies could each have $5 million in assets.
They are not economically identical.
The Bottom Line
Think about value through several lenses:
- Net assets.
- Existing book economics.
- Future underwriting potential.
- Investment income potential.
- Future production.
- Fees and expenses.
- Risk.
- Tax and structural considerations.
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.