Optimal Growth for P&C Insurance Companies
By Luyang Fu
It is generally well established that new business produces higher loss and expense ratios and lower retention ratios than renewal business. Ironically, to add more new business, an insurer needs higher profitability in order to generate the additional capital needed to support its exposure growth. Irrational growth is one of the op reasons for the insolvencies of property and casualty insurance companies. This study presents a method to balance the opposing forces of growth and profitability. The proposed method is straightforward and can be effectively employed by property and casualty insurers in their strategic planning process.
Keywords: Aging phenomenon, constrained maximum growth, optimal growth, combined ratio, premium-to-surplus ratio, enterprise risk management.