As we consider the evolving insurance ecosystem and private investors’ role in it, there are bright spots in PE insurance investing, despite the uncertainty. Opportunities exist with distribution players and service and technology providers. By acting quickly and making bold moves using our eight investment recommendations as a guide, private equity investors can create value in this complex and dynamic industry.
This financial statement lists everything a company owns and all of its debt. A company will be able to quickly assess whether it has borrowed too much money, whether the assets it owns are not liquid enough, or whether it has enough cash on hand to meet current demands. If a company takes out a five-year, $4,000 loan from a bank, its assets (specifically, the cash account) will increase by $4,000. Its liabilities (specifically, the long-term debt account) will also increase by $4,000, balancing the two sides of the equation.
Simplifying an insurer’s balance sheetThe toughest part of understanding insurance companies and their finances is wrapping your head around new terminology. Things like prepaid reinsurance premiums, premiums receivable, and deferred acquisition costs seem calculated to confuse the average investor. Over-reserving can result in an opportunity cost to the insurer as it there are less funds available for investments. Conversely, under-reserving can boost profitability as more funds are freed up to invest. Regulators, however, closely watch the reserving policies of insurance companies to make sure adequate reserves are set aside on the balance sheet.
What Are the Uses of a Balance Sheet?
Insurance expense is the amount that a company pays to get an insurance contract and any additional premium payments. The payment made by the company is listed as an expense for the accounting period. If the insurance is used to cover production and operation, then https://www.wave-accounting.net/ the insurance expense can be listed in an overhead cost pool and divided into each unit produced during the period. When this occurs, part of the insurance expense will be listed in ending inventory, and some of it will be listed under cost of goods sold (COGS).
- Those with scale and sophisticated capabilities in operations and analytics look for opportunities to “go upstream” and attract capital to co-invest in balance-sheet risk-taking—for instance, by setting up their own Lloyd’s syndicate.
- In 2013 she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative.
- This balance sheet also reports Apple’s liabilities and equity, each with its own section in the lower half of the report.
- In our example, the number for total assets at year-end 2020 would overstate the amount and distort the return on assets ratio (net income/total assets).
This balance sheet compares the financial position of the company as of September 2020 to the financial position of the company from the year prior. Last, a balance sheet is subject to several areas of professional judgement that may materially impact the report. For example, accounts https://online-accounting.net/ receivable must be continually assessed for impairment and adjusted to reflect potential uncollectible accounts. Without knowing which receivables a company is likely to actually receive, a company must make estimates and reflect their best guess as part of the balance sheet.
Build for the Future
The same principles for targeting adjacent and riskier spaces hold true for claims businesses. One claims-services provider, for example, has made more than a dozen acquisitions to deepen its expertise in one service adjacent to claims services, while also broadening its geographical reach and covered insurance lines to round out its portfolio. This approach has elevated the prominence and value of services providers because large customers appreciate their depth in specific services and small to midsize customers turn to them to consolidate outsourcing. As the contours of a postpandemic economy begin to take shape, the implications for private-equity (PE) investors in the insurance sector are also coming into focus.
Fundamentals of Insurance Financial Statements
Insurance companies reporting to the Securities and Exchange Commission must maintain and report another set of figures that meet GAAP standards. A company’s property insurance, liability insurance, business interruption insurance, etc. often covers a one-year period with the cost (insurance premiums) paid in advance. The one-year period https://turbo-tax.org/ for the insurance rarely coincides with the company’s accounting year. Therefore, the insurance payments will likely involve more than one annual financial statement and many interim financial statements. Back to basicsAn insurer takes money from these three sources of funding (policyholders, creditors, and stock holders) and invests it.
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This means that if policyholders would like, they can designate a portion of their premiums towards investing in equities. This press release may contain forward–looking statements regarding the financial performance, business prospects, growth and operating strategies of Horizon Bancorp, Inc. and its affiliates (collectively, “Horizon”). For these statements, Horizon claims the protection of the safe harbor for forward–looking statements contained in the Private Securities Litigation Reform Act of 1995.
Investors have also created value in insurance services by building dominant positions in the relatively mature claims-management space and by consolidating human resource information systems (HRIS) and benefits-administration services on the same platform. The policies are intended to cover not only its property and products but also to protect its workers. Unexpired premiums should be listed as prepaid insurance, which is listed in an asset account. By recognizing acquisition expenses before the premium income is fully earned, an insurance company is required to absorb those expenses in its policyholders’ surplus. This appears to reduce the surplus available at the inception of a policy to pay unexpected claims under that policy.
How PE investors can make the most of these trends
If you have a life insurance policy, you might be wondering whether it’s an asset or a liability. The answer is that yes, life insurance is an asset if it accumulates cash value. The Company’s regulatory capital ratios remain above well capitalized levels after the transactions, with total capital to risk weighted assets at 13.7%, tier 1 capital at 12.8% and common equity tier 1 at 10.7% on a pro forma basis as of September 30, 2023.
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