Term
| (3) Problems with historical UW Profit margin |
|
Definition
1) Didn't consider the time value of money
2) Didn't respond to changes in competitive market enviroment
3) Used sales as a rate base doesn't take into account equity provided from the investor |
|
|
Term
| Pitfalls with IRR analysis (5) |
|
Definition
1) IRR Rule vs NPV - not always the same
2) Constraints
3) Sign reversals
4) Mutually exclusive Contracts
5) Presentation of results - note IRR always positive, even if less than cost of capital |
|
|
Term
|
Definition
| Is the IRR greater than the opportunity cost of capital |
|
|
Term
| 2 times when IRR and NPV differ |
|
Definition
1) Projects with unusual cashflows
2) Projects with Budget constraints/mutually exclusive projects |
|
|
Term
| 2) Practical Criticisms of IRR |
|
Definition
|
|
Term
| Differences between Insurers and Utility Companies |
|
Definition
Utility companys have fixed capital,
but insurers with large reserves will gain additional investment returns, which may generate postive IRR. |
|
|
Term
| 7 Risks surplus protects from |
|
Definition
1)Asset risk
2)Pricing risk
3) Reserving Risk
4) Asset Liability Risk
5) Catastrophe risk
6) Reinsurance risk
7) Credit risk |
|
|
Term
| IRR Models vs policy former |
|
Definition
1) some make no distinction overstating on retro, understate for excess
2) Others may allocate only relative to true insurance risk- understate for retro/excess and large deductible policies - less insurance risk, more volatility |
|
|
Term
| 2 differences between insurer surplus and manufacturer |
|
Definition
1)Manu can objectively measure needed assets, whereas insurer is estimate
2)Manu can divide assets into products naturally, whereas all insurer surplus stands behind each product |
|
|
Term
| Approach to holding surplus, other industries vs Insurer |
|
Definition
| Other industries choose strategic investments based on potential returns, insurers hold relative to past profits. |
|
|
