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We shouldn't let accountants tell us what is valuable and what is not.
In many insurance and reinsurance companies, the single most important component of the firm's value remains unmanaged, principally because it is invisible or only dimly visible to the firm's senior officers. Making this value visible, measuring it and understanding how to manage it well will distinguish successful insurers and reinsurers from unsuccessful ones.
In most firms, what is visible is what has to be reported in the firm's statutory or GAAP- Generally Accepted Accounting Principles-financials.The incredible importance of financial reporting became especially evident to me more than two decades ago when, as a junior analyst at a large property/casualty insurer, I was asked to help build a financial planning model for a new division that would directly market auto insurance.The existing model, based on GAAP, showed that the division's prospective earnings would be unacceptably low. From a GAAP standpoint, every new policy that was written lost money and added to the deficit already created by start-up expenditures, which were considerable. But slowing the rate of growth only postponed the day when the operation would become profitable. At first glance, there appeared to be no way to salvage...