Insurance portfolio is what? Structure of the insurance portfolio

The effectiveness of the company's activities is determined by the indicators 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: concludes contracts, calculates rates, collects fees, takes responsibility, creates reserves, invests funds to generate income. To implement these actions, the organization needs funds.

Definition

One of the indicators that characterize the financial reliability of the company is the 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 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.

Factors

The number of contracts concluded does not indicate 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 liabilities will 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 to quickly realize assets and fulfill its obligations if necessary.

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 for the analysis of calculations. The reason for the instability can also be the company's acceptance of a large number of homogeneous risks.
• Equilibrium is the ratio between the number of old and 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 must 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 periods of time includes a differentiated scope of responsibility. To reduce the risks of the organization, they resort to the help of reinsurers. The company determines the retention limit in accordance with risk groups and its capabilities. 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 size of funds, 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, the company can get into a situation of simultaneous cumming when all obligations have to be covered immediately. In practice, this is the reason for the bankruptcy of organizations, as for the payment of funds are required not only the reserves created, but also the company's capital. Therefore, the insurance portfolio is a source of receiving resources, the financial stability of the organization depends on the quality of the structure.

Benefits

Transfer of responsibility allows solving some problems:

• To compensate for the damage at a very large risk arising from a catastrophic event. For example, in the case of an epidemic, cumulation takes place, which is already extremely dangerous for the insurer, since it increases its costs.
• Stabilize the activities of the organization for a long period after unfavorable results throughout the year.
• Increase competitiveness in the market.
• Form a balanced insurance portfolio.
• Ensure the protection of assets.

disadvantages

The insurance portfolio is a set of concluded 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 shared responsibility. 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.

Structure

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:

• Obligations under contracts, corresponding to the formed reserves;
• Assets intended to cover risks.

The insurer transfers the portfolio formed at the time of the decision. 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 formed reserves 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 balance or market price.

Grounds for transfer of contracts

There are several of them:

• Withdrawal 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.

Conclusion

The insurance portfolio is the number of contracts entered into 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 correctly form and distribute risks and liability under contracts. However, reinsurers' services are not free. Therefore, it is necessary to evaluate the economic efficiency of the transaction before it is concluded. The process itself is under strict state control.