Key Details in an Insurer's Annual Report

How is the company making a profit (if any)?

An insurance company generates profits in two ways – from writing insurance policies (known as the technical profit) and from investing premiums before they are paid out as claims (non-technical profit).  It is possible to make a loss on one area but be profitable overall.

What is classified as a ‘sale’ for an insurance company?

The Gross Premium Written reflects all of the business written in a specific period.  Yet an adjustment to ensure that premiums are matched to the period in which they are earned and deducting the costs of re-insurance means that the Net Premium Earned is usually significantly lower.

What is capital adequacy?

Capital adequacy essentially refers to the amount of shareholders’ funds that are available to absorb any losses and ensure that the bank does not default on depositors.

How big is the balance sheet?

The biggest asset of an insurance company will be their investments.  These are held to pay our claims in the future.  The assets should be greater than the provision for unpaid claims.

How liquid are the assets?

In practical terms, claims are paid out of premiums received.  Any shortfall is made up by selling investments.  It is important for an insurance company to ensure that an adequate proportion of assets are sufficiently liquid.