How much money can you make owning your own insurance company?

Answer 1

Simplistically, the profit of an insurance company is the premium less the claims and expenses associated with running the company plus the investment income. As a practical matter these components are subject to a number of factors ranging from accounting rules, regulatory rules, rating agency requirements, tax laws, lines of business written, the use and cost of reinsurance, the geographic profile in which the business is located, and litigation environment to name a few. For that reason it is difficult to answer the question without a clear understanding of these variables.

One way to answer the question is to simply look at the income statement of any insurance company, (or a group of insurance companies), that fairly represents the type of insurance you would write and and territory in which you would propose to operate. By looking at the net operating income which includes investment income, the income statement indicates the amount of income that would accrue to the owner(s) of the insurance company. Perhaps a better measure than the absolute amount of profit, is the return on equity, since earning $10 Million on equity of $100 Million is arguably more desirable than earning the same amount on $1 Billion.

Looking at insurance industry statistics for the Property & Casualty Insurance Industry as a whole for examples reflects a fairly marginal rate of return(http:/wwwzperiodzisozperiodzcom/ResearchzhyphenzandzhyphenzAnalyses/Overview/StudieszhyphenzandzhyphenzWhitepaperszperiodzhtml). On an individual company basis, however, some perform much better than others on a consistent basis.