8
Assessing the Business Plan for an Insurance Company
This chapter offers a framework for analyzing the business plan of an insurance company from a valuation perspective. The goal of the analysis and the underlying method are not different from what we presented for banks in Chapter 4: assessing the sustainability of forecasts and highlighting areas of potential inconsistency by applying three broad categories of checks on the business plan:
- Status quo analysis: determine if potential adjustments should be applied to key Balance Sheet items. Areas which are particularly critical for insurers include asset valuation, reserve adequacy, and solvency,
- Internal consistency: assessment of the business plan projections to verify internal coherence, that is, consistency between historical performance and projected performance, the expected evolution of P&L items and that of Balance Sheet items, asset side and liability side, financial forecasts, and operating forecasts.
- External consistency: assessment of those elements that are not directly controlled by company management but, especially in the case of insurance companies, have a significant impact on expected performance; that is, macroeconomic trends and competitive dynamics. Benchmarking business plan targets against market consensus, whenever available, provides an additional and important external reference.
8.1 STATUS QUO ANALYSIS
A credible business plan should move from a reliable representation of the ...
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