Model Introduction
- 01:31
Get an overview of building a property and casualty insurance company model
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Transcript
Here we have a 10-year forecast model for Direct Line Insurance, this is the completed model. So before we actually start to complete it ourselves, let's take a look at the finished product and what's here. I'm gonna zoom out a little bit so we can see more of the screen. So you can see at the top, we've got some assumptions, and they will generally be ordered in the order of the income statement, followed by the balance sheet. Then we have a set of calculations. And these are typically base calculations, which are beginning balance, addition, subtractions, and ending balance for the deferred acquisition costs, the unknown premium reserve, the equity account. We've also got some return on the invested assets, and the finance costs here. Then there's a claims analysis. So it's a little bit of an analysis of the historical breakdown of claims. And then we have the triangles, the claim triangles. And we need to do two, one for the historical liabilities and how they get paid down, and then one for the newly created liabilities and how they get paid down from the forecast period. And you can see those two triangles kind of neatly fit together. Then we've got a little base calculation for the gross reported claims. And then the income statement, followed by the balance sheet, followed by a simple valuation model. So we're going to build this in steps, but this is what we will end up with.