(1) (2) Yearend Yield
Underwriting Approximate on Long-Term
Loss Average Float Cost of Funds Govt. Bonds
------------ ------------- ------------- -------------
(In $ Millions) (Ratio of 1 to 2)
1967 .......... profit $ 17.3 less than zero 5.50%
1968 .......... profit 19.9 less than zero 5.90%
1969 .......... profit 23.4 less than zero 6.79%
1970 .......... $ 0.37 32.4 1.14% 6.25%
1971 .......... profit 52.5 less than zero 5.81%
1972 .......... profit 69.5 less than zero 5.82%
1973 .......... profit 73.3 less than zero 7.27%
1974 .......... 7.36 79.1 9.30% 8.13%
1975 .......... 11.35 87.6 12.96% 8.03%
1976 .......... profit 102.6 less than zero 7.30%
1977 .......... profit 139.0 less than zero 7.97%
1978 .......... profit 190.4 less than zero 8.93%
1979 .......... profit 227.3 less than zero 10.08%
1980 .......... profit 237.0 less than zero 11.94%
1981 .......... profit 228.4 less than zero 13.61%
1982 .......... 21.56 220.6 9.77% 10.64%
1983 .......... 33.87 231.3 14.64% 11.84%
1984 .......... 48.06 253.2 18.98% 11.58%
1985 .......... 44.23 390.2 11.34% 9.34%
1986 .......... 55.84 797.5 7.00% 7.60%
1987 .......... 55.43 1,266.7 4.38% 8.95%
1988 .......... 11.08 1,497.7 0.74% 9.00%
1989 .......... 24.40 1,541.3 1.58% 7.97%
1990 .......... 26.65 1,637.3 1.63% 8.24%
1991 .......... 119.59 1,895.0 6.31% 7.40%
1992 .......... 108.96 2,290.4 4.76% 7.39%
1993 .......... profit 2,624.7 less than zero 6.35%
1994 .......... profit 3,056.6 less than zero 7.88%
INSURANCE PRINCIPLES
1. They accept only those risks that they are able to properly evaluate (staying within their circle of competence) and that, after they have evaluated all relevant factors including remote loss scenarios, carry the expectancy of profit.
These insurers ignore market-share considerations and are sanguine about losing business to competitors that are offering foolish prices or policy conditions.
2. They limit the business they accept in a manner that guarantees they will suffer no aggregation of losses from a single event or from related events that will threaten their solvency. They ceaselessly search for possible correlation among seemingly-unrelated risks.
3. They avoid business involving moral risk: No matter what the rate, trying to write good contracts with bad people doesn't work. While most policyholders and clients are honorable and ethical, doing business with the few exceptions is usually expensive, sometimes extraordinarily so.