Insurance Challenge Case Study Guide - PriSim

Case

Study

Guide

Underwriting►

BrokerTraining & Time

blocking►

BrokerProduction &

Sales►

Carrier CustomerService &Claims►

Carrier Talent Management,

Investment,KPIs►

ProductDevelopment &Management►

Customer Analysis ►

Competitive Analysis ►

Production Detail ►

Analytics:

Source Analysis ►

BrokerPerformance ►

CarrierPerformance ►

UnderwritingDetail ►

• Improve carrier segment skills

• Set investment approach• Analyze performance ratios ,

Solvency Ratio, and IRIS ratios

Notes: • Some decisions have more

leverage than others.• Decision-making is not

necessarily sequential.• Strategy should drive your

decisions.• Beware of sub optimization

(e.g. tweaking one area and not paying attention to the whole).

• Forecasts are based upon previous competitive information.

© Copyright 2021 PriSim Business War Games Inc.

• Analyze customer segments• Examine competitors and

products• Analyze lead sources (“201”

version)• Analyze production statistics

(“201” version)

• Introduce new products to market• Advertise products to broker• Set product price• Set product coverage• Set product loss control

• Specify underwriter activities • Set commissions paid to brokers by the carrier• Set contingents paid to the brokers by the carrier• Choose reinsurance method by product line

• Set carrier customer service levels• Set claims payment speed• Set claims approach

Decision Map

• Improve producer segment, product, and task skills

• Specify the activities performed by producers

• Advertise broker to customers• Set broker service levels• Establish producer

commissions for new & renew business

• Specify number of carriers to access ("201" version)

• Instruct producers to spend time at specific lead sources ("201" version)

• Carrier financial statements and performance detail

• Borrow/pay off debt• Pay dividends• Issue/retire stock

• Broker financial statements

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Table of Contents – Case Study Guide

Welcome to the Insurance Challenge™! .................................................... 4

Simulation Versions ................................................................................... 5

Objectives of This Simulation Course ........................................................ 5

Learning Through Simulations ................................................................... 5

The Process and “Rounds” ........................................................................ 6

Leading and Managing Your Insurance Business ....................................... 7

Customer Analysis ..................................................................................... 7

Product Development & Management ..................................................... 8

Carrier Underwriting ................................................................................. 9

Broker Production & Sales ....................................................................... 11

Broker Training & Time‐Blocking ............................................................. 13

Carrier Customer Service & Claims .......................................................... 14

Carrier Talent Management, Investment, KPIs ........................................ 14

Proforma Reports and Corporate Finance ............................................... 15

Source Analysis, Competitive Analysis, and Production Detail ................ 16

Appendix – The Production Pipeline ....................................................... 16

Glossary of Selected Terms Used in Insurance Challenge! ...................... 18

© Copyright 2021, PriSim Business War Games Inc.

(888) 4‐PRISIM

Insurance Challenge™ Case Study Guide

All Rights Reserved. No part of this document may be reproduced or transmitted in any form or

by any means now known or invented, electronic or mechanical, including photocopying,

recording, or by any information storage or retrieval system without written permission. For

information about this product, please contact PriSim Business War Games Inc. at (888) 4‐

PRISIM.

insurance challenge case study guide.docx

2/12/2021

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Welcome to the Insurance Challenge™!

Ready to run an insurance company!? Good. Because you have been placed on the leadership

team of a computer‐simulated insurance carrier and broker network in competition with other

teams. You and your team will have sole control and responsibility for all decision‐making.

In this live, interactive “business laboratory”, you will run your company over several simulated

1‐year rounds. Your mission is straightforward: improve carrier and broker performance. In

doing so, you will make long‐term (strategic) decisions and short‐term (tactical) decisions.

At the end of each round of competition, you will receive feedback on your performance. The

management team that runs the “best” insurance carrier and broker network will win the

competition!

Our goal in this class is to develop your business acumen including your: strategic thinking;

financial skills; leadership; and business decision‐making.

Good luck!

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Simulation Versions

Your prework instructions will specify which version of Insurance Challenge will be used in your

course. Any product or market descriptions in this manual are for demonstration purposes only,

and may be different from those you will encounter in your actual course.

101‐version: A “simple conglomerate” with both carrier and a subset of broker decisions.

201‐version: A “complex conglomerate” with both carrier and detailed broker decisions.

Ignore the “201” decisions and details in this manual if you are not running this version.

Carrier‐Only version: With no broker decisions. If you are running this version, ignore all

“broker” decisions and details in this manual.

Personal Insurance version: With only Personal insurance products; no Commercial or

Specialty.

Objectives of This Simulation Course

Running an insurance company is a complex endeavor. This simulation has been designed to

realistically challenge you with this task to improve your business acumen and to:

Better understand the complex “value chain” of insurance operations from broker to

carrier.

Think of an insurance company as an integrated system of processes that yields a business

result.

Build your financial skills, and understand how carriers and brokers make profit.

Develop your skills in strategic thinking, business planning, and market and competitor

analysis.

Recognize the “lifetime value” of customers and the importance of meeting their needs and

wants.

Understand that competitors and markets are constantly changing and evolving.

Cultivate your leadership and teamwork skills.

Share and discuss best practices with peers and/or business partners.

Learning Through Simulations

The data and information used to develop this simulation was taken from real‐world insurance

companies. The strategic, financial, and operational relationships that you observe on the

computer screens and in your reports were taken from that data and information.

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While the simulation doesn’t encompass all of the complexities and dynamics of your real‐

world business, it does reflect many important insurance industry dynamics that will help

improve your business acumen. We limit the scope of the dynamics, and thus your decisions, to

focus your thinking on concepts that are critical to your development as an effective business

decision‐maker.

Simulations can be very useful learning tools:

The knowledge and judgment required to be successful in today’s business world is best

developed through experience. Simulations provide a practice ground where you can gain

experience that might otherwise take years to gather. Rather than just talking about topics

such as strategy and financial statements, you will apply and experience the subject matter

in action. Studies have found that when people engage in this manner, information‐

retention jumps from 20% to nearly 80%.

The consequences of risk taking are reduced, and you can practice decisions and gain on‐the‐job experience without the risks and implications of making those decisions in the real

world.

In addition to the opportunity to see business interrelationships you might not normally be

exposed to, you will also immediately see the impact of your decisions.

The broad range of business dynamics mirrored in a simulation will allow you to see the big

picture. You will be better prepared to apply the lessons learned from the simulation, and

to improve your performance, when you return to the real world and make real business

decisions.

The Process and “Rounds”

We have divided the class into several competing teams. Each team will run an insurance

carrier and broker network for several competitive rounds. Each round will last between one

and three hours, and represents 1‐year of competition.

After you are done and perform a “Final Save” at the end of each round, the Instructor will

collect and process decisions from all the competing teams. The competitive results of each

round will be given to you in the form of financial statements and other reports for your

analysis. Prior to beginning the next round, the Instructor and all teams will discuss the results.

Teams will then make another set of decisions for the next round, and so on…

This competition is a “zero‐sum game” in which customers purchase from the company that

best meets their specific needs; and all other companies miss out on the sale!

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Leading and Managing Your Insurance Business

You will take over a struggling carrier and broker network that have been run with no real

direction or focus – and it shows in its lackluster performance! Your challenge is to lead and

manage the business and to improve its performance.

At the start of the competition, you will:

Conduct a SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats):

Assess carrier and broker strengths, weaknesses, and past performance.

Analyze opportunities and threats in the external market.

Define your Mission, Objectives, and Strategies, and Tactics (MOST).

As you run your company through each successive competitive round, you will:

Analyze the results of the previous round, including financials, competitor data, etc.

Revise and adjust your Mission and Strategies as needed.

Execute your Mission and Strategies by making decisions in these areas:

Product Development & Management – New product development (for new product

lines and/or customer/industry segments), product pricing, advertising/business

development to brokers, coverage, loss control, and profitability analysis.

Underwriting – Underwriting capacity, commissions, reinsurance, Guaranteed

Supplemental Compensation (GSC), and activity time‐blocking.

Broker Production & Sales – Broker promotion, staffing, service levels, and new

business sourcing (201‐version).

Broker Training and Time‐Blocking – Producer skills development and time‐blocking

(where and how much time should be spent on specific activities).

Carrier Customer Service & Claims – Customer and claims service levels.

Carrier Talent Management, Investment, KPIs – Carrier competency development,

investment approach, and ratio analysis.

Customer Analysis

Business success in any industry requires that you have a

deep understanding of your marketplace and that you

identify who your customers are and what they need and

want. In the competition, insurance customers differ in

their sensitivities to price, coverage, claims responsiveness,

value‐added services (loss control, customer service, expertise, etc.), and financial strength.

Identify your target segments early,

and align your pricing, coverages,

service levels, etc. with them.

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Analysis has already been completed for you on all potential customer segments. Your

challenge is to quickly determine which segments you will target. Recognize that it takes time

to build awareness with any of the customer segments in the marketplace.

Product Development & Management

Start by examining the products you currently offer and determine the new products that are

available for development.

Your current products are shown in the purple fields along with the forecasted combined

ratio.

Products that are available for development, but not currently sold by your carrier, are

indicated in white. If you launch one of these products, a development charge will be

incurred.

A product shaded black is not currently available, but may be in a future round (click on the field to see

which round).

You will make several decisions for each of the products

you offer:

Advertising Spend:

Targeted advertising and business development

efforts drive your product awareness, which is also

impacted by the length of time the product has been

available. This spending is directed to the broker

network, and can increase the number of submissions

from the broker to your carrier. When you first

launch a product, awareness will be very low so make sure to advertise.

Price Adjustment:

Price can be adjusted up or down. For some products, there may be restrictions on how

much you can raise prices in a given year.

Coverage:

Determines how “conservative” or “broad” you are in

covering your customers’ losses. Increasing coverages

may increase your loss expense but may also increase

customer satisfaction.

Loss Control/Appraisal:

Includes pre‐underwriting activities and post‐sale services that can reduce losses (e.g.

appraisals, security consultations, engineering reviews, safety seminars, quarterly reviews,

infrared service, etc). Improvements in Loss Control/Appraisal increase underwriting

expenses but may also increase broker submissions, renewals, and customer satisfaction.

The number of new products you

can launch each round may be

limited by your Instructor.

Beware of increasing coverage

without having adequate

competencies.

“Niche” products may not be

offered by many carriers in the

marketplace; thus, your broker

network might be interested in

niche products that you do offer.

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Loss Tails:

You can access a bar chart showing each of

your products’ forecasted Loss Tails. This is the

timing between when a loss actually occurs and

when it is paid. Losses are not always paid, or

even reported, at the time when they occur.

The length of time between when a loss

happens and when the loss is reported can vary

significantly by product. For example, collision

damage claims are usually reported and paid soon after a car accident (short loss tail); a

back injury claim may take longer to report and close as medical care and/or litigation take

place (long loss tail).

Carrier Underwriting

Carrier Underwriter Activities

You can direct your underwriters to spend their time on specific activities:

New Business – time spent working with producers on new business submissions. This is

calculated for you based upon the volume of new business submissions being generated.

Marketing – time spent contacting brokers about your products and “rounding out

customer accounts” (upsell and cross‐sell). The more time you spend in marketing, the

better the fit your business and the customer accounts that brokers send to you.

Renew Business – time spent working with producers to renew existing business (e.g.,

sending reminder letters to brokers, notifying brokers of changing terms). Also impacts your

Customer Satisfaction Index (CSI).

Administration and Development – endorsements, training, new product development,

home office coordination, branch manager meetings, and broker advertising/business

development.

Slack – time “wasted” on unproductive activities.

Commissions and Incentives to Brokers

You can sell to your customers only through your broker network, and cannot sell directly to

them. You can offer two types of incentives to brokers:

Commissions: You can set commissions to your brokers by

product type.

Guaranteed Supplemental Compensation (GSC):

Low commissions will likely

result in fewer submissions

from brokers.

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Growth Reward:

Motivates brokers to help grow your carrier’s book of

business by aggressively pursuing accounts and

submitting a greater share of those accounts to your

carrier.

Loss Ratio Reward:

Encourages brokers to pass along better‐quality prospects with lower losses to your

carrier.

Reinsurance

You can reinsure your product lines to help manage the risk of severe losses and to better

leverage your equity as you grow.

No Reinsurance – All premiums and losses are

kept within the company.

Quota Share – Choice of either 80/20 or 50/50 (e.g., 80/20 means that 80% of premiums and

losses are kept with the primary insurer, and 20% go to the reinsurer). This option may

make sense if you are growing quickly and regulators/investors have become concerned

about your carrier’s financial strength and ability to absorb unanticipated losses.

Excess of Loss – Choice of coverage for loss‐ratios in the “band” of either 1.0 to 1.3 (100% to 130%)

or 1.1 to 1.3 (110% to 130%). This method of

reinsurance will begin coverage only when a book

of business has a Gross Incurred Loss Ratio greater

than 1.0 or 1.1 respectively, and reinsurance

coverage will stop after Loss Ratios exceed 1.3.

The books of business that are reinsured will be automatically determined for you based on

regional, market, and/or customer risks. This option can help control losses from unusual or

extreme risks.

You will be shown the charge you’ll incur for your

reinsurance choice as a Percentage of Gross Written

Premium in the column next to the method chosen.

You will also be shown your Net Written Premium

forecast to give you a sense for what you are ceding

to reinsurance companies as a result of your reinsurance choice.

Consider Quota Share if surplus is tight,

and Excess of Loss if Loss Ratios are a

concern.

GSC earned by brokers in the

current year will be paid out

in the following year.

The reinsurance options are all “treaty”

reinsurance that would cover your entire

book of business in a specific category as

opposed to “facultative” reinsurance

that would cover specific, individual

policies.

As you make your decisions, there may be

changes in Reinsurance Ceded and

Insurance Claims on the Income

Statement and in Reinsurance

Recoverable on the Balance Sheet.

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Broker Production & Sales

You will make decisions for one “average” broker, and those decisions will be replicated across your

entire broker network.

Promotion & Staffing

Broker Awareness

Customer awareness of your broker is built

through promoting and advertising. Higher

awareness makes it easier to get an appointment

with prospective customers.

Staffing and Capacity

You can adjust the number of producers and support staff in your broker:

Adjusting Staffing Levels: Hiring/Firing

and Planning for Growth

It takes 3 months to recruit a new

producer. New producers join your

company with only a base set of skills;

additional training may be required.

Firing producers occurs immediately.

If you change the number of producers, be sure to re‐examine your sourcing decisions

as the amount of time spent on Lead Generation may have changed.

Managing Attrition

Attrition is driven primarily by overtime – the

utilization over 40‐hours per week. Each FTE has

18 days per month to work, but is willing to work some overtime – within reason.

Producer attrition is also affected commission rates. Turnover will not occur until the

end of the decision round.

Service Levels

The level of services you offer to customers should be aligned to your overall target segments,

and will impact new business, retention, and customer satisfaction:

Value‐Added Services: include security consultations, employee background

investigations, warm‐transfer for claims

(e.g., a direct connect to remediation

services in the event of water damage),

risk profiling, consulting, safety programs,

Broker promotion (advertising/business

development) helps drive marketplace

awareness. Low awareness can lead to

poor visibility and low market share, even

if you offer excellent capabilities, service

levels, and products.

You may wind up with too few Producers (which

can result in poor new‐business performance), or

too many Producers (which can result in high

compensation expenses relative to production).

Your goal is to optimize your staffing levels for

your strategy and target markets.

“FTE” stands for Full Time Equivalent.

“EOY” stands for End Of Year.

You can increase your Value‐Added Service level

by 2 in any given year (on a scale of 1 to 10, where

10 is best). Higher levels can increase your

Customer Satisfaction Index (CSI), your broker fees

(a source of revenue), and can reduce your

insurance carriers’ loss ratio.

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return to work programs, risk management services, pre‐emptive contract reviews, etc.

Number of Carriers Accessed (201‐version): you can “shop” your prospects (leads) to one or

more carriers to find the best solution and service levels. Submitting prospects to multiple

carriers may increase CSI, but may reduce your Growth Supplemental Commission by

spreading out your accounts across carriers.

Producer Commissions

You can set commissions paid to your producers for both new and renew business.

New Business Sourcing Decisions (201‐version)

Brokers find new business through a variety of lead sources.

You can divide your producers’ Lead Generation time

between different lead sources (“Centers of Influence”).

Sources of customer leads include:

Direct To Consumer: through telemarketing, direct mail,

and call‐ins.

Associations/Affinity: through industry‐specific associations and “affinity groups”.

Account Rounding: “rounding out customer accounts” through upsell and cross‐sell.

Carrier Referrals

Current Customer Referrals

The level of Lead Generation Activity/Effort you allocate to each of these sources directs the

producers where to spend their time identifying and contacting leads. You will block a specific

amount of time for this task in the New Business Lead Generation activity item on the Broker

Training & Time Blocking screen.

“Coverage” indicates how completely you’ve contacted all the potential customers through a

specific source. Coverage less than 100% implies you have not contacted all possible leads;

coverage over 100% could indicate that you are over‐working a source and can transfer some

activity to other sources.

Pipeline Efficiency is a function of coverage, turning appointments into submissions

(Submissions to Appointment ratio), and writing policies from those submissions (Written to

Submissions ratio).

Account Rounding of your specific

accounts is not available to other

teams!

There are a finite number of new

customers available each year

from each source.

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Broker Training & Time‐Blocking

Training

You can train your broker staff in several areas:

Types of products you offer (e.g., Commercial

– Property, Personal – Home).

Types of customers you are targeting (e.g.,

General Market, High Income).

Activities they perform (e.g., Lead Generation, Renewing).

Training takes time away from other work and it costs money – but it can increase CSI and sales

and can reduce losses.

Producer Activities and Time‐Blocking (201‐version only)

You can direct your producers to spend their

time on specific activities.

New Business Lead Generation: time spent

contacting prospective customers. If you

change this time‐block, be sure to re‐examine your sourcing decisions as the amount of

time spent on Lead Generation may have changed.

New Business Closing and Lead Conversion: time spent working with leads and submitting

their requirements to carriers.

Servicing Existing Accounts: time spent answering calls and checking in with existing clients.

While a bulk of servicing is completed by Customer Service Reps, some producer time may

be required. More time should be spent for higher customer service levels.

Renewing Business: time spent renewing business. As the broker grows you will want to

spend more time here.

Coordinating With Carriers: time spent improving your understanding of your carriers’

products and services. This allows you to better match a potential insured with the right

carrier and improves your written to submitted ratio as well as renewal rates.

Professional Development: time spent training producers.

Admin & Slack: time spent on administrative tasks and time “wasted” on unproductive

activities.

Broker skills are measured on a scale of 1‐10,

with 10 being the most skilled. If you decide not

to train, skills may still improve slightly through

informal on‐the‐job training.

Producers are willing to work some overtime –

within reason! Support staff will only work 110%

before attrition increases.

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Carrier Customer Service & Claims

You can set the level of carrier claims service you provide to your customers:

Customer Service Levels:

Your responsiveness to customer inquiries (e.g., issuing and endorsing policies) and the

services you provide to brokers (e.g., online account access, payment processing options).

Higher levels increase your underwriting expenses but can also increase CSI.

Claims Service – Approach:

How “strict or liberal” you tend to be in covering

claims for each customer segment and how

personalized your approach. Higher levels increase

your paid losses and loss adjustment expenses, but

may also increase sales and CSI for that segment.

Claims Service ‐ Speed:

How long it takes your carrier to settle and pay

claims. Paying claims faster can increase CSI and

improve sales and renewals. However, as you

decrease the number of days for payment, your cash position is decreased which reduces

invested assets and thus investment income.

Carrier Talent Management, Investment, KPIs

You can make carrier investment decisions, develop your carrier customer segment

competencies, and analyze key performance ratios:

Investment Strategy:

You can determine the overall investment

approach you wish to take, from 1 (conservative)

to 10 (aggressive). An aggressive approach puts

more of your invested assets into stocks, real

estate limited partnerships, private investments,

and hedge funds.

Key Performance Indicators (KPIs):

Several metrics are shown that reflect your overall performance and capacity to underwrite

additional business:

IRIS (Insurance Regulatory Information System) ratios were developed by U.S. state

insurance regulators to assist state insurance departments in targeting resources to

those insurers in greatest need of regulatory attention.

Service and Claims levels are on a scale

of 1‐10, with 10 being best.

You can only change your Customer

Service and Claims levels by 2 each year.

Paying claims faster may also reduce

the overall dollar amount of claims

that you pay.

Changes in investment strategies take

more than one year to fully implement.

Your approach in the current year will

not only impact this year's rate of

return, but also next year's rate of

return.

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Capital, Profitability, and Other Metrics

The Solvency Ratio

Competency Development by Customer Segment:

Training in customer segment competencies costs

money, but the investment can yield a better

understanding of customers, increased broker

submissions, reduced losses, and higher renewals.

Proforma Reports and Corporate Finance

Proforma Financial Reports:

At any point you can see the forecasted impact of your decisions on your company’s proforma

financial statements. Proformas are estimates based upon last year’s competitive positioning;

actual results will be impacted by this year’s competitive and marketplace dynamics.

Insurance Carrier:

Proforma Income Statement

Proforma Balance Sheet

Proforma Cash Flow Statement

Proforma Product Contribution Report

Broker Network:

Proforma Income Statement

Corporate Finance:

You can make several financial decisions through the Capital Structure decisions section on the

Balance Sheet.

Short‐term debt is available if you need cash. The interest rate you pay will be determined by

your credit rating. You can also pay off short‐term debt when you are ready. Long‐term debt

will be managed for you.

As an alternative source of capital, you can issue (and repurchase) common stock. You can also

pay a cash dividend. The dollar‐amount of stock you can issue or repurchase will be limited by

the amount of stock your company currently has outstanding.

Customer Segment competencies are

shown on a scale from 1 to 10. It takes

one year to improve competencies.

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Source Analysis, Competitive Analysis, and Production Detail

Source Analysis (201‐version)

The customer segments and numbers of leads

available vary by lead source. If you are targeting

specific customers, make sure you focus on the best

source of customers.

Competitor Analysis

You will have access to selected information

about the carriers you are competing with

including their average pricing, coverage,

and awareness levels. You can also analyze

market‐average customer expectations for

the current year.

Production Detail (201‐version)

Having a good product to offer a customer is important, but if you are not bringing in customers

of the right type or quantity, your product positioning doesn’t matter. The Production Detail

report identifies how well your broker network is working specific customers. In addition, it

breaks out broker sales by carrier and tells you what percentage of customer submissions

they’re sending to you versus other carriers.

Your broker network will “shop” each potential customer to several carriers for the best

product fit. However they will NOT shop the customer to any other companies in your specific

competition.

Your carrier will only receive a portion of the customers generated from your brokers. Make

sure to monitor the percentage of broker submissions that actually are sent to your carrier.

Appendix – The Production Pipeline

Your broker network is the only production and distribution channel for your carrier.

If your carrier cannot meet the needs of your brokers and customers (e.g., pricing, commission,

skills, service levels), then your brokers will submit the customers to other carriers.

Expectations are a different concept than

sensitivities. For example, a customer may be a 10

in sensitivity to coverage (i.e., coverage is very

important), but only expect a 2.5 out of 10 because

that’s what the current marketplace offers.

Your competitors’ decisions will also shape

customer expectations.

Lead sources also vary by the quality of the

leads they provide and their conversion

effectiveness.

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Referring to the figure above:

(A) You can improve the number of customer appointments at your broker by:

Advertising to raise broker awareness

Increasing producer new‐business commissions

Increasing your carrier’s growth GSC

Improving producer lead generation

skills (201‐version)

Increasing lead generation effort to increase coverage (201‐version)

Hiring producers to generate more

appointments

(B) You can improve the number of broker submissions to all carriers by:

Building broker customer and product

skills

Increasing broker value‐added services

Developing producer lead conversion skills and increasing effort (time‐blocking

– 201‐version)

(C) You can improve the percentage of submissions from your broker to your carrier by:

Offering more products to strengthen the

tie with your brokers

Offering more specialized products that

fewer carriers offer

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Improving carrier customer service and

customer skills

Increasing commissions and GSC

Improving claims speed and approach

Increasing carrier advertising to raise broker awareness

Increasing carrier loss control

(D) You can improve your carrier’s Written to Submitted Ratio by:

Increasing your broker’s time spent

coordinating with your carrier to match

prospects with your carrier’s products

(201‐version)

Reducing the number of carriers your

brokers access (201‐version)

Adjusting price and coverage

Improving financial strength

Focusing your product offerings (e.g., Personal lines vs. Commercial)

Glossary of Selected Terms Used in Insurance Challenge!

Customer Analysis:

Financial Strength/Brand: Financial strength and corresponding ratings assigned by

independent rating brokers such as AM Best, Moody’s, etc.

Product Detail:

Earned Premium: Premiums written that have been earned for coverage provided over

a period of time. Earned premiums are recognized as revenues.

Loss Ratio: The ratio of incurred losses and loss adjustment expenses to net earned

premiums.

Expense Ratio: The ratio of underwriting expenses to written premiums.

Gross Combined Ratio: The sum of the loss ratio and the expense ratio.

Gross Underwriting Profit (GWP): Gross UW Profit = Earned Premiums – Incurred Losses

– All Expenses (none deferred).

Loss Tail: The average length of time by year beyond the policy year that it takes for

claims to be settled and paid.

Carrier Underwriting:

Net Written Premium (NWP): The sum of premiums written by an insurance company

over a period of time, less premiums ceded to reinsurance companies, plus any

reinsurance assumed.

Surplus: Statutory equivalent of GAAP Shareholders’ Equity. Defined as Net Admitted

Assets less Liabilities.

Net Written Premiums to Surplus: Net Written Premium as a Percent of Surplus.

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Reinsurance Methods:

- Quota Share: Premiums and Losses are divided proportionally between the primary

insurer and the reinsurance company. Can help a company grow when capital is

limited.

- Excess of Loss: Reinsurance is provided when losses are in excess of a retained layer

(similar to a deductible). This option can help control losses from unusual or

extreme risks.

Reinsurance Charge: The charge incurred for a reinsurance option as a Percentage of

Gross Written Premium.

Net Claims % of EP: Claims incurred as a percent of Earned Premium.

Carrier Customer Service and Claims:

Invested Assets: Investments in government and corporate bonds, public stock, real

estate, etc.

Claims Service Speed: The length of time it takes for a carrier to settle a claim.

Carrier Talent Management, Investment, KPIs:

Investment Income: Income generated from the firm’s Invested Assets.

Investment Expenses: Expenses incurred in managing the firm’s investments.

Current Rate of Return: The gain or loss on an investment over a specified time period,

expressed as a percentage of the investment's cost.

Solvency Ratio: The Solvency Ratio is the core metric used in the European Union as

part of Solvency II, a regulatory program begun in 2016 to assess whether an insurance

company is holding enough capital to cover its exposure to extreme risks. The Solvency

Ratio is defined as the market value of an insurance company’s “Own Funds” (Surplus),

divided by the Solvency Capital Requirement (SCR), and should be above 100%. The SCR

represents an almost “worst possible case” level of capital that would cover a 1‐in‐200

year shock occurring in the following 12‐months.

ROA: Return on Assets. Defined as Net Profit $ / Total Assets. Indicates the efficiency in

managing the assets of the firm.

ROE: Return on Equity. Defined as Net Profit $ / Total Equity. Indicates the profitability

of the shareholders’ investment in the firm.

ROS/ROR: Return on Sales, or Return on Revenue. Defined as Net Profit $ / Revenue.

Indicates the firm’s profit margin on revenue earned.

IRIS Ratios: Insurance Regulatory Information System. Developed by state insurance

regulators to assist state insurance departments in allocating resources to those

insurers in greatest need of regulatory attention. Several ratios are used to assess the

health of insurance companies.

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Income Statement:

Investment Income: Income generated from invested assets carried on the Balance

Sheet.

Insurance Claims and Claims Expense: This year's paid loss and paid Loss Adjustment

Expense (LAE), plus changes in Loss Reserves.

Amortization of Deferred Policy Acquisition Costs: Commissions and underwriting

expenses that can now be expensed since the premiums have been earned. These

expenses may have already been paid, but were previously deferred from an

accounting standpoint and held on the Balance Sheet.

Credit Rating Forecast: Financial strength and corresponding ratings assigned by

independent rating agencies such as AM Best, Moody’s, etc. Driven by balance sheet

strength and operating performance.

LTV: Lifetime Value in Net Written Premium of the average insured covered by the

carrier.

Balance Sheet:

Unpaid Claims and Claims Expense: Reserves for upcoming anticipated claims. Both

Case and IBNR (Incurred But Not Reported) Reserves.

Deferred Policy Acquisition Costs: Deferred portion of underwriting expenses to be

eventually matched to earned premiums and expensed on the Income Statement.

Other Assets: Such as Prepaid Reinsurance Premiums, Deferred Income Tax, Intangible

Assets, Goodwill, Buildings, etc.

(888) 4‐PRISIM

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Insurance Challenge Case Study Guide - PriSim

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