QUESTION 1

Answer to these questions supporting your conclusions with data. Be specific and go straight to the
point.
- How is it possible that life analysts are happy about the group’s performance,
whereas non-life analysts express criticism in 2018?
Let us look in a couple of ratios in order to check the performance of the two divisions in the group.
Both companies experience increase of own finds over the analysed time periods. They have
approximately the same percentage share of capitalization of own funds which means that they
have the same level of capitalization. ROE for the life insurer is increasing while for the non-life
insurer it is decreasing. It could be one of the sources of dissatisfaction with the performance of non-
life insurers. The next step which we have to conduct is to determine what may cause the decline of
the ROE for non-life division and the increase for life division. Let us consider the leverage as a factor
affecting ROE. We can see that life-insurer has a growing leverage while non-life insurer has a
declining one. The non-life insurer is improving its performance in terms of insurance business but
the results of the financial business are worsening. The declining leverage and worsening results
from the financial performance of the non-life insurer confirms means that the non-life insurer faces
a problem with the financial products it is selling. Results of financial business for the life insurer are
decreasing which may be explained by the fact that life insurance are exposed to greater systematic
risk. The data shows that life insurer improves its performance in terms of insurance business. The
deduction which can be made to this moment is the following. Life division ROE has be growing due
to improvement in the performance of insurance business and increased leverage. Non-life division
ROE has been decreasing due to worsening performance of financial business and decreasing
leverage. It may explain the moods of the analysts regarding the performance of the two companies.
Let’s look in a couple of KPIs to additionally figure out what is happening. For non-life insurer the
combined ratio is less than 100 percent and slightly decreasing which shows a good performance.
Moreover, it performs below the industry average which is usually around 90/95%. Gross coverage
of technical provisions two companies is both greater than 100 percent which may be perceived as a
good indicator. It would be more comprehensive to see how investments behave because gross
coverage of technical provisions may go up die to decline in provision not die to improved
management and performance of investment. Both companies experience worsening in terms of
investment income. For non-life insurer the investment income is more closely related to
management decision because it is more stable and not so much exposed to external factors like the
one of life insurer. One concern which has to be taken into consideration is that life-insurer increases
leverage while at the same time return on financial business goes down.

A board member has the following doubts while reading the annual report:
- The consolidated balance sheet shows zero participating interests and zero
minority interests. How is this possible, since it is a group report?
The lack of minority interest may be used as an indicator that the group does not try to consolidate
and expand. Minority interest is the portion of the company that is not owned by the parent
corporation which may mean that in this case the entire group is owned just by the parent company.
The lack of participating interest may show that the group does not participate in any other groups
as a minority holders. These too figures shows that the group could be regarded as highly
independent.

QUESTION 2
The following table provides the P/L for a selected business line of this group (numbers are rounded
for simplicity). Estimate the net cash flow arising from insurance operations for 2018, knowing
that:
- administrative expenses are incurred and paid in 2018,
- DACs in the balance sheet for this business line increased from 2.000 (in 2017) to 2.500 (in
2018).

 INCOME STATEMENT – BUSINESS #1 2018 2017

Gross written premiums 100.000 90.000
Premiums ceded to reinsurers -10.000 -8.500
Change in net premium provisions -2.500 -1.100
Net earned premiums 87.500 80.400
Gross claims paid -58.000 -61.000
Claims received from reinsurers 12.000 4.000
Change in net claims provision -8.000 4.300
Net incurred claims -54.000 -52.700
Acquisition costs -6.000 -5.800
Administrative expenses -10.000 -12.000
Change in other technical provisions -500 -700
RESULT OF THE INSURANCE BUSINESS 23.000 15.000

Net Cash Flow= Gross written premiums-Gross Claims Paid-Premiums Ceded to Reinsurer + Claims
received from the reinsurer- Administrative cost –Acquisition cost= 100000-58000-10000+12000-
10000-5500= 28500

Acquisition costs = -2000 – 6000 + 2500 = -5500