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The Insurance Performance Measure: Bringing Value To The Insurance Industry

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  • Joseph Calandro
  • Scott Lane

Abstract

The performance of the property and casualty (P&C) insurance industry has suffered in recent years, even prior to the losses incurred in the tragic events of September 11th. Part of the industry's difficulties stems from its focus on premium generation, as measured by the combined or underwriting ratio, at the expense of overall operational performance. In this regard, the underwriting ratio is an incomplete measure of operating performance since it ignores two critical P&C operational functions: investment return and reinsurance results. In this article, the authors present their Insurance Performance Measure (IPM), a comprehensive performance measure for the P&C industry. The IPM captures the three critical operational functions mentioned above in an overall performance measure. The measure is also versatile in that it can be easily decomposed into critical value drivers in each area of operation. Thus, the IPM framework enables P&C managers to observe the interaction and trade‐offs between the operational functions of premium generation, investment return, and reinsurance results separately or as a group, and as they relate to the opportunity cost of surplus.

Suggested Citation

  • Joseph Calandro & Scott Lane, 2002. "The Insurance Performance Measure: Bringing Value To The Insurance Industry," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(4), pages 94-99, January.
    • Handle: RePEc:bla:jacrfn:v:14:y:2002:i:4:p:94-99
    DOI: 10.1111/j.1745-6622.2002.tb00452.x
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    Cited by:

    1. Vladimir Njegomir & Boris Marović & Rado Maksimović, 2010. "The Economic Crisis And The Insurance Industry: The Evidence From The Ex-Yugoslavia Region," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 55(185), pages 129-162, April - J.
    2. Joseph Calandro, 2006. "Accident Year Development, Bonus Banks, and Insurance Incentive Compensation," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 9(2), pages 205-217, September.
    3. Danny Yeung, 2012. "The Impact of Institutional Ownership: A Study of the Australian Equity Market," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2012, January-A.
    4. Adams, Mike & Baker, Paul L., 2021. "Does boardroom nationality affect the performance of UK insurers?," The British Accounting Review, Elsevier, vol. 53(5).
    5. Danny Yeung, 2012. "The Impact of Institutional Ownership: A Study of the Australian Equity Market," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 11, July-Dece.
    6. Bharathkumar, Sai Ranjani & Gupta, Santanu, 2020. "Simplex representation of insurance performance analysis," Journal of Policy Modeling, Elsevier, vol. 42(2), pages 419-436.

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