Performance Indicators in the Insurance Business

This chapter aims to explain the system of Key Performance Indicators (or KPI), for the insurance undertaking and the industry. The reader can learn a detailed explanation (with the related formulas) of the economic indicators. For non-life business they are loss ratio, expense ratio, combined ratio, profitability of sales etc. For life business, specific indicators are considered (annual premium equivalent—APE, single premium equivalent—SPE, new business margin—NBM, expense ratio, expense for asset under management—AUM). The indicators for technical reserves are analysed (i.e. Reserve ageing ratio and congruency of reserves index). The profitability is analysed with the Return On Equity (or ROE). This economic index of profitability is explained in detail. The related formulas are explored in depth. It is divided into technical financial margin and profitability from investments on free capital. Then, the indicators of capitalisation, the solvency ratio and the indicators for the reinsurance area are illustrated. The performance indicators for technical and claims area are explained with numerical examples. For instance, a comparison between the ratio in the claim area is provided.