Profit and Solvency in General Insurance

Abstract

It is possible to compute the profit gained by an insurer on an individual policy. This is sometimes referred to as the ‘technical profit’ and consists of the excess of premiums collected over claim amounts paid and any expenses specific to that policy. It is, in reality, a contribution to the profit of the insurer, to which should be added the contribution from the investment return on the cash-flow generated by that policy, less the contribution from non-specific expenditure. Where the policy is subject to reinsurance there may be further non-policy-specific items (such as profit commission), which should be taken into account before an overall picture of profit can be established. As defined, this technical profit can only be established after the period of exposure to risk is over and after the last claim payment has been made.