Ch7 Financial Operations of Insurers

• Property and Casualty Insurers

• Life Insurers
• Rate Making in Property and Casualty Insurance
• Rate Making in Life Insurance

Hwang Yawen
1. Property and Casualty Insurers
Financial statements (財務報表) is used to examine the financial operations of an insurer. (p.156)
• Balance sheet (資產負債表)
• Income and expense statement (損益表)

Balance sheet
(資產負債表) Specific date
✓ A summary of what a company owns (assets) and
what it owes (liabilities), and the difference Liability
(負債)
between total assets and total liabilities (owners’ Asset
(資產)
equity)
Equity
✓ Total Assets = Total Liabilities + Owners’ Equity (股東權益)
1. Property and Casualty Insurers
Balance sheet
(資產負債表)

Premium (保費) Exhibit 7.1 ABC Insurance Company (p.157)

+
Retained earnings
(保留盈餘)
2018

賠款準備金
Financial assets 未滿期保費準備金
(金融資產)
1. Property and Casualty Insurers

一年期險種
1. Property and Casualty Insurers
Balance sheet
Liability (負債, p.157-158) (資產負債表)
An insurer is required by law to maintain certain reserves on its balance sheet (法令要求保險公司必
須於資產負載表上計提準備金)
An insurer must establish reserves to ensure that premiums collected in advance will be available
to pay future losses (保險公司必須建立準備金，以確保預先收取的保費可用於支付未來的損失)

Unearned premium reserve

(未滿期保費準備金)

Loss Reserves
(賠款準備金)
1. Property and Casualty Insurers
Liability (負債, p.157-158) Balance sheet
(資產負債表)
(1) Loss Reserves (賠款準備金)
✓ The estimated cost of settling claims for losses that have already occurred but that
have not been paid as of the valuation date (賠款準備金是為了以下三種已發生之損失但尚未
理賠之賠付做準備)
 Claims reported and adjusted, but not yet paid (已決未付賠款)
 Claims reported and filed, but not yet adjusted (已報未決賠款)
 Claims for losses incurred but not yet reported to the company (未報未決賠款)
NOTE：may take a long time to settle
✓ Loss reserves in P&C insurance can be classified as: (賠款準備金由以下三部分組成)
 Case reserves (個案賠款準備金)
 Reserves based on the loss ratio method (損失率法下之賠款準備金)
 Reserves for incurred-but-not-reported claims (已發生但尚未通報之賠款準備金；簡稱
IBNR)
 1. Property and Casualty Insurers
Balance sheet
 Case reserves (個案賠款準備金, p.157-158) (資產負債表)
Loss reserves that are established for each individual claim when it is reported (依理賠人員或
相關公式逐案個別提存之損失準備金)
✓ Methods for determining case reserves include: (決定個案賠款準備金的方法)
➢ Judgment method (判斷法)
• A claim reserve is established for each individual claim (依個案決定個案賠款準備金)
• Based on the judgment of someone in the claims department or estimated using a computer
program (由理賠人員依據經驗判斷或以電腦程式進行估計)
➢ Average value method (平均值法)
• An average value is assigned to each claim (以平均值來估算個案賠款準備金)
• Used when the number of claims is large and the average claim amount is relatively small, such
as auto physical damage claims (有大量曝險單位可使用此方法，例如：車體險損失)
➢ Tabular method (制式法：以一些表定因子來計算, 略)
• Loss reserves are determined for claims for which the amounts paid depend on life expectancy,
duration of disability, and similar factors
• The duration of the benefit period is based on data derived from mortality and morbidity tables
1. Property and Casualty Insurers
Balance sheet
 Reserves based on the loss ratio method (損失率法下之賠款準備金, p.158) (資產負債表)

This method establishes aggregate loss reserves for a specific coverage line (針對特定險種建立
其累積損失準備金)
✓ A formula based on the expected loss ratio is used to estimate the loss reserve
→(the expected loss ratio (預期損失率) × premiums earned (滿期保費))
Incurred losses (已發生損失) + Loss adjustment expenses (理賠費用)
Loss Ratio =
Premiums earned (滿期保費)

 Reserves for incurred-but-not-reported claims (已發生但尚未通報之賠款準備金；IBNR, p.158)

✓ Some losses occur near the end of the accounting period but are not reported until the next
period (有些損失發生的時間很接近財報評估日，這些損失通常會在下一個年度才通報)
✓ A reserve that must be established for claims that have already occurred but that have not
yet been reported to the insurer (針對那些已發生，但尚未通報的理賠所建立之準備金)
1. Property and Casualty Insurers
Liability (負債) Balance sheet
(2) Unearned premium reserve (未滿期保費準備金, p.158) (資產負債表)

對於保險期間尚未屆滿之有效契約或尚未終止之承保風險，應依據各險未到期之危險計算未滿期
保費，並按險別提存未滿期保費準備金 (保險業各種準備金提存辦法，第6條)
✓ A liability item that represents the unearned portion of gross premiums on all
outstanding policies at the time of valuation (用來代表在評估日時，已收入保費中之未到期部分
之負債)
✓ Purposes:
• To pay for losses that occur during the policy period (支付保單有效期間內所發生之損失)
• Used to pay the refund to policyholders that cancel their coverage (支付被保險人解除契約之
相關退費金額)
• It also serves as the basis for determining the amount that must be paid to a reinsurer for
carrying reinsured polices until the end of their terms (用以計算需支付給再保公司之再保保費)
✓ Annual pro rata method (比例法, 課本例子)
(3) Other items: loss-adjustment expenses (理賠費用), commissions (佣金)
1. Property and Casualty Insurers
Balance sheet
(資產負債表)
Surplus (盈餘, p.159)
The difference between an insurance company’s assets and liabilities (盈餘=資產-負債).
✓ A cushion that can de drawn upon if liabilities are higher than expected (當負債高於預
期估計時，盈餘可做為緩衝的角色)

✓ The stronger a company’s surplus position, the greater is the security for its
policyholders (當公司盈餘越高，保單持有人之安全性就越高)
✓ The level of surplus is an important determinant of the amount of new business that
an insurance company can write (當公司決定是否承接新業務時，盈餘大小會是重要考量因素)
1. Property and Casualty Insurers
Income and Expense Statement
(損益表, p.159-160) Exhibit 7.2 ABC Insurance Company
It summarizes revenues (收入) and expenses
(費用) paid over a specified period of time.

Revenues (收入)
Cash inflows that the company can claim as
income (保險公司之收入來源):
(1) Premiums (保費收入)
• The premiums written reflect the
premiums for coverage that was placed on
the books during the year (簽單保費係指評
估日當年所收入/簽發之保費金額)
• Earned premiums represent the portion of
the premiums for which insurance
protection has been provided (滿期保費係
指完整保障期間所收入之保費)
(2) Investment incomes (投資收入)
1. Property and Casualty Insurers
Income and Expense Statement
(損益表)
Expenses (費用, p.160)
✓ the cost of adjusting claims (理賠處理費用)
✓ paying the insured losses that occurred (已發生損失之理賠)
✓ underwriting expenses: commissions to agents, premium taxes, and general insurance
expenses (核保費用：佣金、稅、一般行政費用)

Net Income (稅後淨收入, p.151)

Taxable income= total revenues – total expenses
Net income= taxable income – income tax
This money can be returned to stockholders through dividends or be used to increase the
investment portfolio (稅後淨收入可以透過發放股利方式來回饋股東，或是繼續用於投資增加獲利)
1. Property and Casualty Insurers
Underwriting expenses (核保費用)
Measuring Profit or Loss (p.160-161) Expense Ratio =
Premiums written (簽單保費)
Underwriting expenses:
Underwriting Risk Expense Ratio ✓ acquisition costs (commissions)
(核保風險) (費用率) ✓ general expenses
✓ underwriting costs

Loss Ratio
(損失率)
Combined Ratio Larger than 100%?
The ratio of incurred losses and loss (綜合率/綜合損失率) (Example on p.160)
adjustment expenses to premiums earned

Incurred losses (已發生損失) + Loss adjustment expenses (理賠費用)

Loss Ratio =
Premiums earned (滿期保費)
 1. Property and Casualty Insurers

Investment Risk Combined Ratio

(投資風險, p.161) (綜合率/綜合損失率)

Investment income Ratio

(投資收益率)

Overall operating Ratio

Net investment income (淨投資收入) (Example on p. 161)
Investment income ratio = (整體經營比率, p.161)
Premiums earned (滿期保費)
1. Property and Casualty Insurers

整體經營比率
2. Life Insurance Companies
Balance sheet (資產負債表)
Asset (資產, p.161-162)
✓ The assets of a life insurer are primarily financial assets (壽險公司的資產主要是金融資產).
✓ There are three differences between P&C and life insurers (產險與壽險的主要差異):
1) The assets of a life insurer have a longer duration, on average, than those of
property and casualty insurers (相較於產險公司，壽險公司之長年期資產比例較高)
2) Because many life insurance policies have a savings element (因為許多壽險保單具有
儲蓄成分), life insurers keep an interest-bearing asset (附息資產) called “contract
loans” or “policy loans” (壽險公司可以從事保單貸款)
3) A life insurance company may have separate accounts (分離帳戶) for assets
backing interest-sensitive products (利率敏感型商品), such as variable annuities (變額年
金) (投資型保單會有”分離帳戶”)
2. Life Insurance Companies
2. Life Insurance Companies
Liability (負債, p.162-163) Balance sheet (資產負債表)
✓ Policy reserves (責任準備金)
• The major liability item on the balance sheet that must be offset by assets equal
to that amount
• Legal reserves (法定準備金): State laws specify the minimum basis for calculating
policy reserves
✓ The reserve for amounts held on deposit (略)
• A liability that represents funds that are owed to policyholders and to beneficiaries
✓ The asset valuation reserve (資產評價準備金) (略)
• A statutory account designed to absorb asset value fluctuations not caused by changing
interest rates
Surplus (盈餘, p.163)
✓ The difference between an insurance company’s assets and liabilities (盈餘=資產-負債)
✓ Less volatile in life insurers than in P&C insurers (壽險公司盈餘的波動度較產險公司低)
2. Life Insurance Companies

Income and Expense Statement (損益表, p.163)

✓ The major sources of revenues are premiums received for the various products sold
and income from investments (主要收入為保費以及投資收益)
✓ Claims payments are the major expense for a life insurer (理賠為壽險公司主要支出項目)
✓ A life insurer’s net gain from operations equals total revenues less total expenses,
policyholder dividends (保單分紅), and federal income taxes (淨獲利=收入-費用-保單分紅-稅)

Measuring Financial Performance (p.163)

A number of measures can be used to measure the performance of life insurers
✓ Pre-tax or after-tax net income vs. total assets (ROA=稅前(或稅後)獲利/資產總額，資產
報酬率：公司用所有資產賺錢的能力)
✓ Rate of return on policyholders’ surplus, similar to return on equity ratio (ROE=稅
前(或稅後)獲利/股東權益，股東權益報酬率：公司用股東出的錢來賺取獲利的能力)
2. Life Insurance Companies
3. Rate Making in P&C Insurance (p.163-167)
✓ Insurance rates, primarily P&C insurance rates, are regulated by the states (保險費率受
到各州法令的規範，p.163)
✓ Rate-making (費率釐訂) goals can be classified into regulatory objectives (監理目標) and
business objectives (營運目標) (p.163)
✓ Regulatory objectives (監理目標，p.164)
1) Adequate (適足): Rates should be high enough to pay all losses and expenses (保費需足以
支付所有損失與費用)
2) Not excessive (不可過度): Rates should not be so high that policyholders are paying
more than the actual value of their protection (保費不可過高，換句話說，保單持有人所繳付
之保費不應超過其保障的精算價值)
3) Not unfairly discriminatory (不可有不公平之差別對待): Exposures that are similar with
respect to losses and expenses should not be charged significantly different rates (有相似
風險之曝險單位，則其保費應大致上相同，換句話說，風險相似的保費應相同，風險顯著不同的，
則應收取不同保費)
3. Rate Making in P&C Insurance (p.154-158)

✓ Business objectives (營運目標，p.164)

1) Simplicity (簡易): Rates should be easy to understand (保費應簡單易懂)
2) Stability (平穩): Rates should be stable over short periods of time (在短期內保費應維持
穩定)
3) Responsiveness (能適度反映): Rates should be responsive over time to changing loss
exposures and changing economic conditions (費率應能適度的反映損失曝險的變化以及
經濟環境的改變)
4) Encouragement of loss control (鼓勵損失控制): The rating system should encourage
loss control activities (費率系統應能鼓勵被保險人進行風險控制行為)
3. Rate Making in P&C Insurance

Basic Ratemaking Definitions (p.164)

✓ A rate (費率) is the price per unit of insurance (每曝險單位之保險價格=費率)
✓ An exposure unit (曝險單位) is the unit of measurement used in insurance pricing, e.g., a car-
year (曝險單位為用來衡量保險價格之單位)
✓ The pure premium (純保費) is the portion of the rate needed to pay losses and loss
adjustment expenses (產險之純保費=損失理賠+理賠費用)
✓ Loading (附加費用) is the amount that must be added to the pure premium for other
expenses, profit, and a margin for contingencies (在純保費外，用以支付其他費用、獲利、以及意外
之準備)
✓ The gross rate consists of the pure premium and a loading element (總保費=純保費+附加費用)
✓ The gross premium (總保費) paid by the insured consists of the gross rate multiplied by the
number of exposure units (總保費=曝險單位數*總保費費率)
3. Rate Making in P&C Insurance

Rate (費率) Exposure unit

(曝險單位)
3. Rate Making in P&C Insurance

Rate-Making Methods (p.165)

3. Rate Making in P&C Insurance

Rate-Making Methods (p.165)

1) Judgment rating (觀察費率法)
✓ Each exposure is individually evaluated, and the rate is determined largely by the
judgment of the underwriter (每個風險曝險都是單獨評估的，且費率很大程度上取決於核保人
員之判斷)
✓ This method is used when the loss exposures are so diverse that a class rate can not
be calculated, or when credible loss statistics are not available (因為損失曝險差異太大
而無法使用分類費率，或是保險標的的數量太少，無法獲得充足的統計資料來計算費率)
✓ Widely used in ocean marine insurance (遠洋海上保險) and in some lines of inland
marine insurance (內陸水上運輸保險)
3. Rate Making in P&C Insurance
Rate-Making Methods
2) Class rating (Manual rating; 分類費率法, p.165)
✓ Exposures with similar characteristics are placed in the same underwriting class, and
each is charged the same rate
(將相同風險的曝險分在同一風險級別，並收取相同費率)

✓ The rate charged reflects the average loss experience for the class as a whole
(所收取費率會反映該風險級別之整體平均損失率)

✓ It is simply to apply and it is ideal for the personal lines markets (個人性險種), such as
homeowners insurance (住宅火險), private passenger auto insurance (車險), workers
compensation (勞工補償保險), and life and health insurance (壽險與健康險)
✓ Two basic methods: (略)
 Pure premium method (純保費法)
 Loss ratio method (損失率法)
 3. Rate Making in P&C Insurance
Rate-Making Methods
3) Merit rating (增減費率法；績優費率法, p.166)
A rating plan by which class rates are adjusted upward or downward based on individual
loss experience (保險費率會隨損失經驗而調升或調降)
Loss experience (t~t+1) Retrospective rating (追溯費率法)
• the insured’s loss experience during the current policy period
determines the actual premium paid for that period (依據被保
t t+1 險人當期之損失經驗來調整費率)
• used by the large firms in workers compensation insurance,
Premium(t) general liability insurance,… (通常使用在大型公司的勞工補償
保險、責任保險等)

Experience rating/Prospective Rating Method (經驗費率法/預期法)

Loss experience(t~t+1)
• the class or manual rate is adjusted upward or downward based on past loss
experience (依據過去的損失經驗來調整未來之費率)
t t+1 • generally limited to large firms that generate a sufficiently high volume of
Premium(t+1) premiums and more credible loss experience (通常使用在大型公司，具有較
可信之損失經驗)
4. Rate Making in Life Insurance (p.167)

✓ Life insurance actuaries use a mortality table (生命表) or individual company

experience (個別公司經驗) to determine the probability of death at each attained age
✓ Expected future payments are discounted back to the start of the coverage period
and summed to determine the net single premium (NSP; 躉繳純保費：將所有未來可能理
賠折現至投保時衡量其精算價值) and then convert to the periodic-level premiums (平準保
費)

✓ A loading for expenses (附加費用) is added to determine the gross premium (Ch13)