Knowledge Base: Insurance Modeling Tutorials

Insurance modeling (i.e., financial modeling for insurance companies) is quite similar to bank modeling because insurance companies and banks have a similar business model: Operate a “normal business” that raises funds from customers, and use those funds to invest and earn a higher profit on the investments.

The difference is that banks do this with loans, while insurance companies do it with a mix of investments, including equities, fixed income, “alternatives” (e.g., private equity) and more.

To understand insurance companies, you need to know the flow of the statements, including how Written and Earned Premiums relate to the Premium Reserves and Loss & Loss Adjustment Expense (LAE) Reserves on the Balance Sheet.

From a valuation perspective, you often use a standard Dividend Discount Model to value insurers (with “Risk-Based Capital” in place of the CET 1 used for banks); you can also use the Embedded Value model and multiples like P / BV, P / TBV, and P / E.