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“An ounce of prevention is worth more than a pound of cure”<\/strong> – Benjamin Franklin<\/span><\/p>\n The founding father of insurance in America is Benjamin Franklin. He started the Philadelphia Contributionship insurance company in Philadelphia. The goal, provide for replacement costs of a home destroyed by fire in Philadelphia. The idea of insurance<\/a><\/strong><\/span> spread; and over time, more than just homes are covered by insurance. Today, insurance addresses multiple risks that exist. From life to health and even title insurance for real estate are just a few of the many risk absorption tools to prevent catastrophic financial loss.<\/span><\/p>\n This section of Value Investment Pools covers property and casualty loss insurance companies. Common risks include auto, home, workers compensation, business general liability, business property, and title insurance. It specifically excludes health, retirement, and most common forms of life insurance. As stated many times within the value investing section of this website, it is very difficult to find two companies that sell the exact same set of products or provide the same service for comparative purposes. As such, a couple of the members within this pool do sell life insurance products or retirement types of products as an item on their insurance menu. However, their primary forms of products are indeed, property and casualty forms of insurance.<\/span><\/p>\n Insurance is a $1.3 Trillion business in the form of premiums excluding health insurance. Half of this business is property and casualty insurance at $650 Billion per year. This site’s six members within this pool comprise over 16% of all property and casualty business. There are currently 2,500 property and casualty insurance companies in the United States. Most of the businesses operate as mutual insurance companies; the most notable is State Farm<\/a><\/strong><\/span> with over 9% of all premiums earned. Mutual and private property and casualty insurance underwriters are not publicly traded. There are about 15 property and casualty insurance companies in the top 2,000 publicly traded companies in the United States. This pool of six earns over 60% of all the property and casualty premiums earned by publicly traded insurance companies; thus, it is a highly selective pool representing this type of insurance and reflects this industry well.<\/span><\/p>\n Property and casualty (P&C) insurance companies have a highly complex financial matrix. Novice investors would think of them as merely a company that earns premiums and pays out claims. The difference is effectively margin which then covers overhead and generates a profit. The truth is not this simple. In reality, P&C companies utilize a very complex revenue generating system and the most sophisticated balance sheet presentation to explain their profitability and long-term viability.<\/span><\/p>\n In general, property and casualty insurance companies are really two business operations combined. The first is the traditional premiums earned against losses paid out. From the difference here, the company’s goal is to cover overhead including commissions paid to agents along with other operational costs. The end result is some profit to add to the company’s reserves against future catastrophic events. The second arm of operations is more in line with an investment company. Unlike most balance sheets, the balance sheet of a P&C company is heavily weighted with current assets<\/span><\/a><\/strong> in the form of investments. The bulk of these investments are fixed income generating securities like bonds. The balance is typically equity investments such as stock or strong positions with limited liability companies. The investment portfolio makes up more than 70% of all assets found on the balance sheet. Liabilities are also heavily weighted with current liabilities and are mostly driven by the expected future claims to be made against premiums earned. In effect, a P&C company’s number one liability is the value of future expected losses.\u00a0<\/span><\/p>\n What really complicates property and casualty insurance companies are the different tools they use to minimize risk. These various tools include:<\/span><\/p>\nInsurance Pool (Property and Casualty) – Financial Matrix<\/strong><\/span><\/h2>\n
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