Term
| Ferrari Notation: T, I, U, P, A, R, S |
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Definition
| T = Total After Tax Returns, I = Investment Gain or Loss (after tax), U = Underwriting Profit (after tax), P = Premium income, A = Total assets, R = reserves and other liabilities (excluding equity in UNPR), S = Stockholder's equity (capital, surplus, equity in UNPR) |
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Term
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Definition
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Term
| Ferrari Fundamental Equation |
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Definition
| T/S = I/A * ( 1 + R/S) + U/P * P/S |
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Term
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Definition
| (R/S)(essentially loans from policyholder) |
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Term
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Definition
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Term
| Equation as form of Capital |
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Definition
| T/S = I/A + R/S * (I/A + U/R) |
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Term
| Balcarek P/S ratio interaction with I/A |
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Definition
Increases in P/S lead to lower I/A,
1) Premium increases tie up assets in agents balances, etc
2) In order to keep overall risk constant, increases in Premium should be matched by reductions in investment risk |
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Term
| Balcarek P/S ratio interaction U/P |
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Definition
| Will move together because the more profitable the business, the more risk you can assume w/o changing likelyhood of insolvency |
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Term
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Definition
| Will move in the same direction because more underwriting profit allow for more risk taking on investments |
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Term
| 3 parties in each components |
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Definition
1)Investors interested in ROE
2) Society interested in ROA
3) Regular/Actuaries interested in ROS |
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Term
Optimum Capital Structure
2) Factors that affect value |
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Definition
is the mix of Owners Equity and Libilities which maxs value of firm
1)Expected earnings stream
2) Rate at which stream is discounted by the market |
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Term
| Method to determine optimum capital structure |
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Definition
1) Relationship between I/A & U/R and resulting impact on earnings stream
2) Increase in probability of unfavorable results due to higher volatility |
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