In this article the generic term insurance encompasses reinsurance.
Value Creation in the Insurance Industry
Article first published online: 26 APR 2002
Risk Management and Insurance Review
Volume 4, Issue 2, pages 1–9, September 2001
How to Cite
Hancock, J., Huber, P. and Koch, P. (2001), Value Creation in the Insurance Industry. Risk Management and Insurance Review, 4: 1–9. doi: 10.1111/1098-1616.00001
In its August 1997 report European Insurance: Paying Claims to Value-Based Analysis, Credit Suisse First Boston writes: ``Traditional measures such as EPS (Earnings per Share), are easily influenced by accounting practices, and do not incorporate risk or the time value of money. Furthermore, in our opinion they do not help investors to understand the intricate process of value creation. Value destroying growth can be simultaneously achieved with EPS growth'' (Banger, 1997).
See the International Accounting Standards Board's Insurance Issues Papers available at its Web site (http://www.iasc.org.uk).
Embedded value is the discounted value of statutory profits expected to arise in the future from business in force at the valuation date, together with the value of shareholders' funds.
RAROC adjusts the returns of an insurer or bank for risk and puts it in relation to used capital.
A leveraged investment fund is an investment fund that finances the purchase of financial assets partly by fund holders' capital and partly by debt (leverage). The analogy of an insurance company to an investment fund is captured nicely in the following quote from the January 16, 1999, issue of The Economist: ``When world stock markets took a summer plunge, insurance shares dived twice as far. When equities recovered in the autumn, insurers also rose faster than the market. This amplification of movements in the stock market helps to explain two things. First, why investors in insurance are biting their nails these days as Wall Street, once again, is looking vulnerably overvalued. And second, how shareholders really think of insurance companies: as little more than highly leveraged investment trusts'' (The Economist, 1999, p. 61).
Net asset value denotes the market value of assets less the economic (market) value of liabilities (debt).
This is not always the case, as the examples of many life insurance products show.
- Issue published online: 26 APR 2002
- Article first published online: 26 APR 2002
Options for accessing this content:
- If you are a society or association member and require assistance with obtaining online access instructions please contact our Journal Customer Services team.
- If your institution does not currently subscribe to this content, please recommend the title to your librarian.
- Login via other institutional login options http://onlinelibrary.wiley.com/login-options.
- You can purchase online access to this Article for a 24-hour period (price varies by title)
- If you already have a Wiley Online Library or Wiley InterScience user account: login above and proceed to purchase the article.
- New Users: Please register, then proceed to purchase the article.
Login via OpenAthens
Search for your institution's name below to login via Shibboleth.
Registered Users please login:
- Access your saved publications, articles and searches
- Manage your email alerts, orders and subscriptions
- Change your contact information, including your password
Please register to:
- Save publications, articles and searches
- Get email alerts
- Get all the benefits mentioned below!