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The Actuary The magazine of the Institute & Faculty of Actuaries
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Research shows underwriting management key to value creation

The cost of capital plays a key role in defining the profitability of insurers, according to Swiss Re’s latest sigma report. The study found that underwriting profitability is an important driver of investor confidence, together with profitable top-line growth and scale of operations.

When investors provide capital to companies, they expect a return on that investment. This is the cost of capital to a company of using investor capital. It is calculated by comparing the expected return on other investments with a similar risk profile. Cost of capital is crucial in measuring the extent to which an insurer is creating economic value.

The new sigma study, ‘Insurers’ cost of capital and economic value creation’, assesses an insurer’s cost of capital by separately examining its insurance and financial market risk exposure.

More at www.swissre.com.