Insurance portfolio is what? Structure of the insurance portfolio
The effectiveness of the company is determinedindicators of financial results from all activities. It is expressed in the form of profit or loss. The first is the source of capital increase and fulfillment of obligations to creditors and the budget. In the process of activity, the insurance company performs many functions: it concludes contracts, calculates rates, collects fees, takes responsibility, creates reserves, invests in order to generate income. To implement these actions, organizations need funds.
One of the indicators that characterizefinancial reliability of the company, is an insurance portfolio. This is a set of concluded contracts for certain amounts. In fact, it is a reflection of the company's obligations to customers. Creating a sustainable portfolio is an important goal of the organization. On its size depends the degree of responsibility of the structure under the adopted contracts. In order to ensure the sustainability of activities, it is rational to create an insurance portfolio with a large number of transactions with a low degree of responsibility. Payment of compensation should not affect the financial position of the company.
The number of concluded contracts is notindicates a stable situation. The lion's share of clients can be attracted by offering lower tariffs. A large insurance portfolio means a high amount of liabilities. But if the tariffs are low, the collected funds may not be enough for payments.
On the other hand, a large amount of liabilitieswill allow the insurer to invest in risky facilities. If the company mainly enters into short-term contracts, then its transactions are subject to an additional requirement - high liquidity. The organization should be able, if necessary, to quickly realize the assets and fulfill its obligations.
Quality of the insurance portfolio
This indicator is characterized in such directions:
- The value, which includes the number of contracts concluded and their total amount.
- Uniformity of risks. The heterogeneity of obligations with a small portfolio size can lead to unpredictable results. In such transactions, it is impossible to use statistical patterns to analyze the calculations. The reason for the volatility may also be the company's acceptance of a large number of homogeneous risks.
- Equilibrium - the ratio between the number of oldand new contracts concluded. Ideally, new transactions must fully compensate for the previous ones, with a balance between the amounts due and the magnitude of the risks.
- Stability - the number of contracts that will be paid before the end of their validity.
Analysis of the insurance portfolio should be made in order to assess the financial possibilities and adjust its structure if necessary.
Transfer of risks
The insurance portfolio of the company in different periodstime involves a differentiated scope of responsibility. To reduce the risks of the organization, resort to the help of reinsurers. The company determines the retention limit in accordance with risk groups and its capabilities. The state bodies established the maximum amount of personal liability of the organization in the amount of 10% of its own funds. The rest of the company must be reinsured. The Russian market is still characterized by a low level of its own funds and, accordingly, the limit of liability.
By transferring risks, the organization reduces the sizefunds, which ensures financial stability of operations. This is especially true for newly created structures, in which the insurance portfolio is not sufficiently developed. Taking a large number of identical risks, a company can get into a situation of simultaneous cumming when all obligations have to be covered immediately. In practice, this causes bankruptcy of organizations, since not only the reserves created, but also the company's capital are required to repay the funds. Therefore, the insurance portfolio is the source of receiving resources, the financial stability of the organization depends on the quality of the structure.
Transfer of responsibility allows solving some problems:
- To compensate for damage at a very large risk,which arose as a result of a catastrophic event. For example, in case of an epidemic, cumulation takes place, which is already extremely dangerous for the insurer, since it increases its costs.
- Stabilize the organization's activities over a long period after unfavorable results throughout the year.
- Increase competitiveness in the market.
- Form a balanced insurance portfolio.
- Ensure the protection of assets.
The insurance portfolio is a set ofconcluded contracts. Although the risk level for them may be high, before transferring a part of the obligations to another company, it is worthwhile to evaluate the economic effectiveness of such a decision. Reinsurance operations are carried out for a surcharge. The size of the commission should correspond to the share of the liability being distributed. An important point is also the determination of the level of one's own retention, which depends on the financial possibilities and profitability of operations. The excessive limit leads to financial instability, too low - to non-profitability.
The transfer of risks by one organization to another is possible only under the condition of supervision by state bodies. At the same time, the structure of the insurance portfolio should include:
- liabilities under contracts, corresponding to the formed reserves;
- assets intended to cover risks.
The insurer transfers the portfolio formed ondecision-making time. It also includes obligations under current treaties and those that have expired, but the obligations have not been fully implemented. For a specific object, risks can be transferred to one insurer.
The value of assets can be equal to the formedreserves or be less than them. Allowances are allowed only if their size does not exceed the difference between the transferred property and the capital of the company. The operation is prohibited if the amount of assets is less than half of the transported reserves. Exceptions are cases of bankruptcy of the company. In case of insufficiency of the transferred assets, the rest can be compensated by the association of insurers. The volume of payments is determined by federal laws. The value of the transferred assets is equal to their book value or market price.
Grounds for transfer of contracts
There are several of them:
- revocation of a license to carry out activities on the initiative of the supervisory authority;
- in the event of a decision to liquidate an organization, the insurance portfolio is to be fully transferred to another company;
- violation of the established solvency requirements, as a result of which the financial condition of the organization deteriorated if the transfer of the portfolio is provided for by the liquidity recovery plan;
- decision-making on voluntary refusal of separate kinds of activity;
- The exclusion of a company from an association of insurers in cases stipulated by laws.
The insurance portfolio is the number ofcontracts concluded by the company for certain amounts. It is the main source of cash. But if the structure is managed poorly, it can cause bankruptcy of the organization. Therefore, it is important to properly form and distribute risks and liability under contracts. However, reinsurers' services are not free. Therefore, we need to evaluate the economic effectiveness of the transaction before it is concluded. The process itself is under strict state control.