The Research On Profit Margin In Non-Life Insurance

In non-life insurance practice,a reasonable profit operated in insurance companies should be considered in ratemaking. Therefore, premiums also included profit margin. Until the mid-1960's, inflation and interest rates were relatively low,and the proportion of property insurance was far higher than the current level, so the insurance industry's profits mainly came from an underwriting profit, the rate generally contained about 5 percent of premium ,in another word, the profit margin was 5 percent. However, with inflation and interest rates increasing, investment returns for insurance companies grew,and some scholars proposed that investment income should not be ignored in determining the profit margin. Soon after, the view was quickly accepted in non-life insurance field.The article derived out a model, which included underwriting profit margin and investment rate of return. It is hopeful that the model can determine a reasonable profit margin. And then, this paper tested for effects on the pricing profit margin from underwriting profit margin and investment rate of return.Firstly, the profit margin was introduced in the article, and it pointed out that underwriting profit margin and investment rate of return would have effects on the pricing profit margin. Therefore, according to the two contributory factors, the model for determining the pricing profit margin was given. Secondly, underwriting profit margin and investment rate of return were expounded in detail. Finally, with the experience data of auto-policies, using this model for determining the pricing profit margin and taking the statistical analysis tools (Matlab software) to carefully perform the empirical research, pricing profit margins were simulated. Theoretically speaking, this model contain the two factors, which provided the basic reference for determine pricing profits margins. After the test for effects on the pricing profit margin from underwriting profit margin and investment rate of return, it was concluded that the effect on pricing profit margin from underwriting profit margin was greater than the effect from investment rate of return. Therefore, when insurance companies determine the pricing profit margin, they should pay more attention to the influence from underwriting profit margin.