Top 4 financial ratios when buying an insurer
Insurance companies are among the most complex businesses to understand. Here are the four financial ratios that matter, and how IAG, QBE and Suncorp compare. 1. Expense ratio Insurance is a highly cyclical industry. Natural disasters can wreak havoc on a company’s income statement, so you have to take any one year’s financial performance with a grain of salt. So how do you separate the well managed companies from the lemons? One figure to keep an eye on is the expense ratio. The expense ratio shows the percentage of the net earned premium (NEP) spent in the course of acquiring, writing and servicing the insurance policies. Insurance is largely a commodity, meaning it's hard for customers to differentiate between policies. That lends itself to a more competitive industry, so the most profitable insurer is generally the one who can keep its costs low. The lower the expense ratio, the more efficient the operation. View full article here: (VIEW LINK)
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