sigma 1/2012: Understanding profitability in life insurance

The latest sigma study examines the difficulties stakeholders encounter in comprehending the value proposition in life insurance and explains why transparent, standardized and understandable profitability reporting is important.

Understanding how life insurers create value is a challenging task. Observers must take a long view when examining profitability since the ultimate result is only known years later when all policy obligations have been fulfilled.

In addition, stakeholders use various methods to comprehend competitiveness and operating performance.

Swiss Re’s latest sigma study, “Understanding profitability in life insurance,” discusses the challenges encountered in grasping this concept and the need of a standard framework for communicating the value and performance of life insurance companies.

Developing a good understanding

“Life insurance plays a key role in managing risks in modern societies. Today, many generations rely on life and health insurance products and this will also be the case in the future as state-funded social health and retirement programmes feel the burden of their ageing societies,” says Lukas Steinmann, co-author of the sigma report.

Steinmann also says that all stakeholders – investors, policyholders, regulators and management - need a good understanding of life insurance profitability.

The report explains how life insurers create value, the difficulties in understanding the concept, and the use of embedded value-based reporting for holistic decision making.

Download “Understanding profitability in life insurance” and watch the video interview with co-author Lukas Steinmann about the report.

Published 7 February 2012