Part 3: Module 7 &8: Management Issues for Non-Depository Institutions (See Chapter 11: Insurance Company Performance Analysis)

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

5a. Calculate and evaluate the Net Underwriting Margin (NUM); Loss Ratio

Expense Ratio; Combined Ratio; and Overall Profitability Ratio for each year

using the information in the income statement above. Also calculate the firms OPM, OROA, ROA, ROE, and equity multiplier (EM).

Recall NUM = (Premiums Earned Total Policy Expenses) / Total Assets

NUM 2020 _-1.53%_________ NUM 2019 ___-0.92%___________

2020 2019

Expense ratio 36.45% 37.33%

Loss ratio 72.13% 71.12%

Combined ratio 108.58% 108.44%

Average Investment Yield 4.94% 5.89%

Overall Profitability -3.64% -2.55%

Dupont Analysis:

Asset Turnover 11.6% 11.89%

Net Profit Margin 4.803% 8.749%

ROA 0.54% 1.04%

ROE 6.22% 11.48%

OROA 2.58% 4.00%

Equity Multiplier (EM) 11.609 11.038

5b. 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 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.