Question

Discuss how the contents of an annual insurance company financial statements can demonstrate business performance to external stakeholders (for example lenders and investors). Within your discussion you explain FIVE different financial ratios which would be of relevance to these stakeholders.

Answer 1

Followings are the contents or key metrics of an insurance company that can demonstrate business performance to external stakeholders like investors/lenders -

Revenue per policy holder

Return on Surplus

Retention%

New policies per agent

Quota v production

Avg policy size

Avg cost per claim

Underwriting cycle time

Cost per application etc.

Followings are the 5 ratio which would be of relevance to these stakeholders -

1. Solvency ratio: It defines how good or bad an insurance company’s financial situation is on defined solvency norms.
2. Liquidity ratio: liquidity ratio measures company's ability to pay short term debt
3. Commission expense ratio: This ratio tells us what is the outflow towards commissions from the written premium during a particular period.
4. ROE: Return on equity gives us how much % the company is about to generate over an equity.
5. Combined ratio: it measures incurred losses & expenses as a % of earned premiums.