In: Finance
Module 7 &8: Management Issues for Non-Depository Institutions
The Save You Insurance Company has the following financial statements. 2020 2019
Net Premiums Written 48,612 47,398
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Income Statement ($ mils.)
Premiums Earned 42,624 48,321
Loss Expenses 30,746 34,364
Operating Expenses 17,720 17,693
Total Policy Expenses 48,466 52,057
Net Underwriting Gain/Loss (5,842) (3,736)
Net Investment Income 15,700 19,995
Operating Income before taxes 9,858 16,259
Dividends to Policyholders 6,517 10,361
Income Tax 1,294 1,670
Net Income $2,047 $ 4,228
Ave Investment Yield 4.94% 5.89%
(mils.) 2020 2019
Total Assets $381,972 $406,529
Liabilities
Total Liabilities $349,069 $369,700
Total Equity 32,903 36,829
Total Liabs. & Equity $381,972 $406,529
Dupont Analysis:
Asset Turnover
Net Profit Margin
ROA
ROE
OROA
Equity Multiplier (EM)
Give an overview for why the insurance companies overall profitability changed in 2020 including trends in the expense ratio, loss ratio, and combined rate, and average investment yield. Also do a Dupont analysis explaining why the ROE and ROA for the insurance company changed in 2020 (based on the Operating Profit Margin, Asset Utilization, and the Equity Multiplier.
Workings:
|
2020 | 2019 | |
Net Premiums Written | 48,612 | 47,398 | |
Premiums Earned | 42,624 | 48,321 | |
Loss Expenses | 30,746 | 34,364 | |
Operating Expenses | 17,720 | 17,693 | |
Total Policy Expenses | 48,466 | 52,057 | |
Net Underwriting Gain/Loss | -5,842 | -3,736 | |
Net Investment Income | 15,700 | 19,995 | |
Operating Income before taxes | 9,858 | 16,259 | |
Dividends to Policyholders | 6,517 | 10,361 | |
Income Tax | 1,294 | 1,670 | |
Net Income | 2,047 | 4,228 | |
Ave Investment Yield | 4.94% | 5.89% | |
Total Assets | 381,972 | 406,529 | |
Total Liabilities | 349,069 | 369,700 | |
Total Equity | 32,903 | 36,829 | |
Total Liability & Equity | 381,972 | 406,529 | |
|
-1.53% | -0.92% | |
Loss Ratio = [Loss Exp / Premiums Earned] | 72.13% | 71.12% | |
Expense Ratio = [Oper Exp / Net Premiums Written] | 36.45% | 37.33% | |
Combined Ratio = [Loss Ratio + Expense Ratio] | 108.58% | 108.44% | |
Overall Profitability = [100% - Combined Ratio%] + Investment Yield | -3.64% | -2.55% | |
Asset Turnover (revenues(Premium earned)/total assets) | 0.1116 | 0.1189 | |
Net Profit Margin (net income/revenues(Premium Earned) | 0.048025 | 0.087498 | |
Return on Assets (Net Income/Total Assets) | 0.54% | 1.04% | |
Return on Equity (Net Income/equity accounts) | 6.22% | 11.48% | |
Operating ROA (Operating Income/Total Assets) | 2.58% | 4.00% | |
Equity Multiplier (Total Assets / Equity) | 11.6090 | 11.0383 |
Formulas:
|
2020 | 2019 | |
Net Premiums Written | 48612 | 47398 | |
Premiums Earned | 42624 | 48321 | |
Loss Expenses | 30746 | 34364 | |
Operating Expenses | 17720 | 17693 | |
Total Policy Expenses | 48466 | 52057 | |
Net Underwriting Gain/Loss | -5842 | -3736 | |
Net Investment Income | 15700 | 19995 | |
Operating Income before taxes | 9858 | 16259 | |
Dividends to Policyholders | 6517 | 10361 | |
Income Tax | 1294 | 1670 | |
Net Income | 2047 | 4228 | |
Ave Investment Yield | 0.0494 | 0.0589 | |
Total Assets | 381972 | 406529 | |
Total Liabilities | 349069 | 369700 | |
Total Equity | 32903 | 36829 | |
Total Liability & Equity | 381972 | 406529 | |
|
=(B3-B6)/B14 | =(C3-C6)/C14 | |
Loss Ratio = [Loss Exp / Premiums Earned] | =B4/B3 | =C4/C3 | |
Expense Ratio = [Oper Exp / Net Premiums Written] | =B5/B2 | =C5/C2 | |
Combined Ratio = [Loss Ratio + Expense Ratio] | =B22+B23 | =C22+C23 | |
Overall Profitability = [100% - Combined Ratio%] + Investment Yield | =(100%-B24)+B13 | =(100%-C24)+C13 | |
Asset Turnover (revenues(Premium earned)/total assets) | =B3/B14 | =C3/C14 | |
Net Profit Margin (net income/revenues(Premium Earned) | =B12/B3 | =C12/C3 | |
Return on Assets (Net Income/Total Assets) | =B12/B14 | =C12/C14 | |
Return on Equity (Net Income/equity accounts) | =B12/B16 | =C12/C16 | |
Operating ROA (Operating Income/Total Assets) | =B9/B14 | =C9/C14 | |
Equity Multiplier (Total Assets / Equity) | =B14/B16 | =C14/C16 |
Operating income has decreased and assets have decreased due to which the operating ROA has decreased and Return on assets has also come down.
Return on equity has almost reduced to half due to slight reduction in equities and net income. Due to slight changes in both equities and assets, equity multiplier remains almost same for both years same as asset turnover ratio whereas net profit margins have also reduced.