• Insurance Companies generally make money in two ways
    • From underwriting insurance policies for more than the claims they pay out
    • By investing the premiums they receive and earning interest before paying out claims
  • During times of high interest rates, the industry tends to ear most profits from the investing side
    • From 1979 to 2003 there were few underwriting profits earned
  • Times of low interest rates impell companies to earn more on the underwriting side of the business

Underwriting Side of Business (Combined Ratio)

  • Combined Ratio =  (Net Claims, Commissions & Expenses) / (Net Earned Income)
    • Ideally this should be < 100%
    • The lower the ratio, the more profitable the underwriting business is