Abstract
The performance of the property and casualty (P&C) insurance industry has suffered in recent years, even prior to the losses incurred in the tragic events of September 11th. Part of the industry's difficulties stems from its focus on premium generation, as measured by the combined or underwriting ratio, at the expense of overall operational performance. In this regard, the underwriting ratio is an incomplete measure of operating performance since it ignores two critical P&C operational functions: investment return and reinsurance results.In this article, the authors present their Insurance Performance Measure (IPM), a comprehensive performance measure for the P&C industry. The IPM captures the three critical operational functions mentioned above in an overall performance measure. The measure is also versatile in that it can be easily decomposed into critical value drivers in each area of operation. Thus, the IPM framework enables P&C managers to observe the interaction and trade‐offs between the operational functions of premium generation, investment return, and reinsurance results separately or as a group, and as they relate to the opportunity cost of surplus.
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