Quality for insurance companies

See how well this business uses money, earns profits and supports its finances.

The score in pictures

Quality for insurance companies: illustrated explanation; the same checks are explained below. — Open the full-size image in a new tab.

What we check

Customer payments for insurance are called premiums. Claims are the costs of covered damage or losses.

Using money well (30%)

How much profit comes from the money invested in the insurer?

Growing income (15%)

Is income growing for each share?

Steady profitability (20%)

How steadily does a share of income remain as profit after expenses?

Insurance profits and debt (35%)

Do customer payments cover claims and running costs? How much of the funding is debt?

How to read the score

Each part receives points from 0 to 100. The percentages above show how much each part counts. A higher total means stronger results on these checks.

Missing figures reduce the information supporting the score and may change how much each remaining check counts. With too little usable information, no score is shown. Read the notes beside the company’s score. A usable return measure is required.

A strong business can still have an expensive share price. The score does not predict what the share price will do.

How we calculate the points

Insurance companies

Here we emphasise whether insurance operations earn money and how much debt the company carries. The standard cash-generation component is not used in this calculation. This does not mean insurers have no cash flows.

▸Return on capital – 30%: ROIC measures profit relative to invested capital. It counts for more than in standard companies because the model allocates weights differently when the cash-generation component is omitted.
▸Business trend – 15%: We examine growth in revenue per share.
▸Profitability stability – 20%: We examine how steadily a share of revenue remains as profit after all expenses. This share is called the net margin.
▸Insurance operations and debt – 35%: We compare claims and expenses with premium income. This is called the combined ratio and counts for 60% of this part. A ratio of 95% means about 95 of every 100 in premiums goes to claims and expenses. The remainder is profit from insurance operations before investment returns. Debt relative to total capital counts for 40% of this part.

What happens when figures are missing?

A poor result and a missing figure are different things. A poor result lowers its part of the score. When a figure is missing, the other parts may receive more weight. We also show that the assessment is based on less information.

We measure how much of the calculation has usable information. We use the component weights, so a missing measure with a large share matters more. At least 90% normally gives High confidence, 70% to below 90% gives Medium, and 60% to below 70% gives Limited. Confidence can be lower when some figures rely on an alternative calculation.

We do not show an overall Quality score if usable information covers less than 60% of the calculation. We also need a usable return-on-capital measure. Without it, we do not show the score. For a bank, we use the corresponding bank return measure.

A measure that is not used for that business type does not count as missing. For example, we do not assess a bank using the standard free cash flow calculation.