# Insurance (life, general/P&C, health) — sector playbook

Use this when: the company underwrites risk on its own balance sheet — a life insurer, a general/P&C carrier, a standalone health insurer, a reinsurer, or a holding company whose main assets are insurance subsidiaries.

Insurers sell a promise today and discover the cost of goods sold years later, and they fund themselves with other people's money (float). That single fact breaks almost every ratio in the generic screening set: the largest expense is a management estimate, the largest liability is neither debt nor equity, and profit for a growing life insurer is legitimately negative for years. Underwrite the reserves and the capital, not the income statement. If the company only distributes or administers insurance — brokers, web aggregators, TPAs, InsurTech MGAs — it carries no underwriting risk and should be analysed as a capital-light services business, not with this playbook.

## Contents
- [Why the generic ratio set fails here](#why-the-generic-ratio-set-fails-here)
- [The metrics that actually matter](#the-metrics-that-actually-matter)
- [How to value companies in this sector](#how-to-value-companies-in-this-sector)
- [Peer set construction](#peer-set-construction)
- [Sector-specific red flags](#sector-specific-red-flags)
- [Cycle and structural context](#cycle-and-structural-context)
- [India vs global notes](#india-vs-global-notes)
- [Checklist](#checklist)

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## Why the generic ratio set fails here

**"Revenue" is not one number, and growth is not a virtue.** Gross written premium (GWP), net written premium (NWP), net earned premium (NEP) and — under IFRS 17 — "insurance revenue" (which strips out investment components and deposit elements) are four different figures for the same company. Indian life insurers headline New Business Premium and APE (Annualised Premium Equivalent = regular premium + 10% of single premium), not revenue. Comparing "sales growth" across insurers without knowing the base is meaningless. Worse, premium growth is trivially manufactured by underpricing: this is the one industry where you can grow 40% next quarter by promising to pay out more than you charge, and the bill arrives three to five years later. Treat unexplained above-market growth as a risk flag, not a quality signal.

**OPM / EBITDA / EBIT are undefined or nonsensical.** There is no gross margin, because the dominant cost — incurred claims — is an actuarial estimate management sets. Interest is not a financing add-back: investment income and interest credited to policyholders are core operating revenue. D&A is trivial. No practitioner quotes EBITDA for a carrier. The correct analogue of operating margin is the **combined ratio** for P&C/health and **VNB margin** (plus CSM release under IFRS 17) for life.

**ROCE and "capital employed" are undefined.** Seventy to ninety percent of an insurer's balance sheet is policyholder liabilities — float and reserves — which are neither debt nor equity and are not capital the firm employs at a cost. Any ROCE computed off total assets or off liabilities-plus-equity is arithmetic noise. Use operating ROE (ex-AOCI, ex-realized gains) and operating RoEV instead.

**Debt/Equity is the wrong leverage measure.** Real leverage here is regulatory and actuarial. Use three measures together: financial leverage (debt + hybrids / total capital, comfortable below ~25–30%), **solvency ratio** (IRDAI minimum 150%; Solvency II SCR coverage; US NAIC RBC), and **underwriting leverage** (NWP/equity). A carrier with zero debt can be dangerously levered on under-priced reserves.

**FCF is misleading in both directions.** A fast-growing life insurer consumes cash — new business strain means acquisition costs and reserve set-up are paid upfront while profit emerges over 15–30 years — so healthy growth looks like cash burn. Conversely a shrinking or under-reserved insurer throws off cash. And operating cash is not distributable: it belongs to policyholders and is trapped by solvency rules. The only genuinely free cash is **remittances from regulated subsidiaries to the holding company**, which require regulator sign-off. Model that, not FCF.

**Working-capital metrics do not exist.** Current ratio, inventory and receivable turnover, cash conversion cycle, capex intensity and asset turnover have no meaning. Do not compute them; do not let a screener's "poor current ratio" flag influence the conclusion.

**P/E is distorted, especially for life.** Under Indian GAAP / IFRS 4, accounting profit is back-ended, so a fast-growing life insurer reports depressed or negative earnings precisely when it is creating the most value. Under IFRS 17, reported profit is largely the CSM release — an output of management assumptions. Even for P&C, headline EPS blends realized capital gains and prior-year reserve movements that have nothing to do with this year's underwriting. Use operating EPS, defined explicitly.

**Book value and ROE need adjustment.** IFRS 4 / Indian GAAP book value ignores the value of in-force business, which is why Embedded Value exists. Reported equity swings with AOCI / fair-value moves on the bond book as rates move, so P/B and ROE change for reasons unrelated to performance — hence "book value ex-AOCI" and "operating ROE ex-AOCI" are the industry standards. In the other direction, held-to-maturity classification can hide large unrealized bond losses that are economically real.

**Consolidated composites are un-valuable on any single multiple.** Groups that blend life, general, health, asset management and lending (Indian financial conglomerates; global multi-line insurers) mix businesses with different capital intensity, different earnings emergence and different correct multiples. Sum-of-the-parts is mandatory.

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## The metrics that actually matter

All ranges are **indicative only**. They vary by market, line of business, cycle stage and accounting regime, and they shift over time. A peer-relative and own-history comparison always overrides an absolute band: an Indian general insurer at 103% combined is strong, while the same number in US commercial specialty is mediocre.

| Metric | Definition / how to compute | Indicative healthy range | Why it matters |
|---|---|---|---|
| **Combined ratio** (general/P&C, health) | Incurred claims ratio + expense ratio (commission + operating expenses), on net earned premium. Note the definition used: Indian general insurers often quote a version *including* policyholders' investment income; US/European carriers quote the pure underwriting number and split ex-cat and accident-year vs calendar-year. | Developed-market P&C 90–97% good, sub-90% best-in-class. India general insurance sector routinely 100–115%; sustainably below ~102–103% is strong. Standalone health 95–100%. | The cleanest single measure of whether pricing risk works. It replaces operating margin outright. Above 100% the insurer survives only if float and investment yield cover the gap — a rate-cycle bet, not a moat. |
| **Loss ratio, accident-year vs calendar-year** | Incurred claims / NEP. Calendar-year includes movements on prior-year reserves; accident-year (best: current accident year ex-cat) isolates this year's underwriting. IRDAI publishes incurred claims ratios by insurer and line. | Indicative India: motor OD 60–70%, motor TP 70–90%, commercial property 50–65%, retail health 65–75%, group health frequently 90–110% (loss-leader). Life claims are judged against actuarial mortality/morbidity assumptions, not a fixed ratio. | Calendar-year loss ratios can be flattered indefinitely by releasing prior reserves. Only the accident-year ex-cat number tells you whether this year's price covers this year's risk. |
| **Expense ratio, Expense of Management (EOM), commission ratio** | Operating expenses + commissions as a % of premium. India has a hard regulatory version: IRDAI (Expenses of Management) Regulations cap *total* EOM rather than capping commission line by line. | India: EOM caps broadly ~30% of GWP for general insurers and ~30–35% for life depending on vintage and mix; running 3–5 points under the cap is a real cost advantage. Developed P&C 25–33%; direct writers 20–25%; broker-distributed specialty 35%+. | Distribution cost is the durable differentiator in a commoditised product, and it is where regulatory shocks land (e.g. India's Sept-2025 removal of GST on individual life and health premiums eliminated input tax credit, structurally raising net expense burden). |
| **Prior-year reserve development** | Change in the estimated ultimate cost of claims from earlier accident years, booked in the current P&L. Favourable = release; adverse = strengthening. Read loss-development triangles (US Schedule P and 10-K triangles; IFRS 17 claims development tables). Indian disclosure is thinner — use IBNR-to-total-reserve trends and the appointed actuary's certificate. | Modest, consistent favourable development of 1–3% of opening net reserves signals prudence. Sustained >5% is suspicious. Any adverse development in long-tail casualty/liability/motor-TP is a serious signal. | The single largest earnings-management lever in P&C. A one-point reserve change can swing EPS 10–20%. Chronic releases funding a deteriorating book is the classic pre-blowup pattern. |
| **Float, investment yield and cost of float** | Float ≈ reserves + unearned premium − recoverables/DAC. Cost of float = underwriting loss / average float (negative means you are paid to hold other people's money). Track investment leverage (investments/equity), book yield and new-money yield. | P&C float/equity 2–4x typical; life far higher. Cost of float ≤0 (i.e. combined ≤100%). New-money yield vs book yield tells you the direction of future investment income. | This is the economic engine generic metrics miss entirely. Two insurers with identical ROE can be completely different in quality: one earns it from underwriting and cheap float, the other from taking investment risk with leverage. |
| **Solvency / regulatory capital adequacy** | Available over required solvency margin (India), SCR coverage (Solvency II), RBC ratio (US NAIC). Interrogate the composition: how much is subordinated debt, deferred tax assets, or value-of-in-force rather than hard equity. | India: IRDAI minimum 150%; comfortable 180–220%. Solvency II: minimum 100%, management targets typically 150–200%. US: RBC well above 300–400% of authorised control level (200% triggers company action). | Solvency, not D/E, sets how fast the insurer can grow and whether it can pay dividends. Drift toward the floor forces a capital raise (dilution), a quota-share treaty, or growth switched off. |
| **VNB and VNB margin** (life) | VNB = present value of future profits from policies sold this year, net of cost of capital. VNB margin = VNB / APE, where APE = regular premium + 10% of single premium. | India 20–28% is the current listed-player band (protection and non-par guaranteed carry 40–80%; ULIPs typically 10–15%). Developed markets structurally lower and annuity/protection dependent. VNB growth should broadly match or beat APE growth. | The life-sector substitute for revenue and operating profit combined: economic value created this year, which reported accounting profit will not show for a decade. Assumption-driven — always check what moved in persistency, mortality and expense assumptions. |
| **Embedded Value, operating RoEV, EV movement analysis** (life) | EV = adjusted net worth + PV of in-force. India uses Indian Embedded Value (market-consistent); Europe MCEV/EEV. Operating RoEV = (unwind + VNB + operating variances) / opening EV, before economic variance. | India: operating RoEV 15–20% strong, low-teens average. Operating variances should be small and consistent, not the main growth driver. | EV is the denominator for life valuation, and its credibility lives entirely in the movement analysis. Growth from unwind + VNB is real; growth from "change in operating assumptions" or "model refinements" is management writing its own scorecard. |
| **Persistency (13/25/37/49/61 month) and surrender/lapse ratio** (life; renewal retention for retail health) | % of policies or premium still in force after n months. IRDAI mandates disclosure at 13/25/37/49/61 months on both premium and policy-count bases — the premium basis usually flatters; read both. | India 13th month: 85–90%+ good on premium basis, <80% weak. 61st month: >55–60% good, <45% poor. Developed protection books: 4–8% annual lapse. Retail health renewal retention 85–90%+. | The operational KPI that validates or destroys VNB, which assumes policyholders keep paying. Falling 13th-month persistency alongside rising reported VNB margin means the margin is fiction and mis-selling is likely. Surrenders also crystallise losses on new-business strain already spent. |
| **Product mix and distribution-channel mix** | Life: APE split by par, non-par guaranteed, ULIP, protection, annuity, group; channel split by bancassurance, agency, direct, brokers, online. General: motor OD/TP, retail vs group health, commercial, crop. | No single bancassurance partner above ~40–50% of APE (India is actively debating a cap). Protection + annuity above 15–20% of APE supports margin. Proprietary/agency above ~30% indicates distribution independence. | Margin, capital intensity and persistency are all mix-driven, so mix explains most of any change in reported VNB margin or combined ratio. Channel mix is a franchise-risk metric: an insurer dependent on one parent bank's branches does not own its distribution, and a partnership renegotiation reprices the whole equity. |
| **Claims settlement ratio, repudiation rate, TAT, grievance ratio** | % of claims settled by count and by amount, % repudiated, average settlement turnaround, complaints per 10,000 policies. Published by IRDAI in its annual report and by NAIC/state DOIs and the FCA equivalents abroad. | India life individual death-claim settlement 98%+ expected, <97% poor. Health repudiation above ~10–12% invites regulatory scrutiny. Grievance ratio should be low and falling versus peers. | Leading indicator of both future growth (brand, renewals) and hidden profitability. Suspiciously low loss ratio plus high repudiation and complaints means profit is being earned by not paying claims — which reverses via regulation, ombudsman rulings and lost renewals. |
| **Reinsurance dependence: cession, retention, recoverables** | Ceded premium / GWP; net retention; reinsurance recoverables as % of shareholders' equity; counterparty credit quality and concentration. India: note mandatory obligatory cession to GIC Re and the order of preference for cession. | Recoverables above ~50% of equity is a credit/concentration concern. Any sudden jump in cession — especially quota share — needs a full explanation. | Reinsurance both protects and flatters. Heavy quota-share cession releases capital, lifts the solvency ratio and books ceding commission upfront — better optics, worse economics. Recoverables are unsecured credit exposure that becomes real exactly when a catastrophe hits. |
| **Catastrophe exposure: PML, accumulations, cat load** | Net-of-reinsurance probable maximum loss at 1-in-100 and 1-in-250 return periods as % of equity; cat programme attachment, limit and reinstatements; the cat load built into the combined ratio. | Net 1-in-250 PML above ~15–20% of equity for a single peril/region is aggressive. Actual cat losses should average close to the budgeted load across a cycle. | P&C earnings are not normally distributed. A carrier can look superb for six years and lose a third of book value in one event. Insurers that habitually report "ex-catastrophe" combined ratios are excluding a recurring cost of doing business. |
| **ALM duration gap, asset quality, unrealized position** | Asset vs liability duration; credit-quality distribution (share below investment grade, share in Level 3 / private credit / real estate); cumulative unrealized gains/losses as % of equity, *including* amounts in held-to-maturity that are never marked. | Duration gap near zero for annuity/guaranteed books. Below-investment-grade under ~5–10% of portfolio. HTM unrealized losses under ~20–25% of equity. | Life insurers with long guarantees are effectively short a very long-dated rate option; India's shortage of ultra-long assets makes the non-par guaranteed book a genuine ALM risk. A carrier stretching for yield in illiquid credit is converting underwriting weakness into hidden investment risk. |
| **Operating ROE (ex-AOCI, ex-realized gains) and underwriting leverage** | ROE on operating earnings — excluding realized gains, AOCI/mark-to-market swings and one-off reserve items — paired with NWP / shareholders' equity. | P&C operating ROE 12–15% through the cycle is good; 15%+ excellent and rare. Underwriting leverage 1.0–1.5x normal; above ~2.0x is aggressive and stresses solvency in a bad year. | Operating ROE against cost of equity is the direct input to the justified P/B, which is how P&C insurers are actually valued. Underwriting leverage tells you how much of that ROE comes from writing more premium per unit of capital rather than from better underwriting. |
| **Health-specific: MLR, PMPM cost trend vs pricing trend, lives covered** | Medical loss ratio (claims / premium, US ACA definition includes quality-improvement spend); per-member-per-month claim cost and its year-on-year trend versus the premium rate increase filed; membership by segment with retention/attrition. India: retail vs group vs government-scheme lives, plus cashless ratio and network hospital count. | US ACA floors: 80% individual/small group, 85% large group and Medicare Advantage — below the floor triggers rebates, so an "efficient" MLR is capped by law. India retail health loss ratio 65–75%; group health often 90%+. Pricing trend should lead cost trend by 50–150 bps when medical inflation is rising. | Health is a spread business on medical inflation. The whole P&L turns on whether next year's price was set above next year's medical cost trend — a forecast made 6–18 months before the risk is borne. A widening gap between PMPM cost trend and filed rate increases is the earliest warning of a bad year, well before the loss ratio moves. |

Supplementary operational reads that rarely appear in screeners but change conclusions: for US managed care, Medicare Advantage **star ratings** (they drive bonus payments and are effectively a multi-year revenue annuity) and **risk-adjustment** model changes; for Indian health, the **claims paid without deduction** ratio and TPA versus in-house claim handling; for life everywhere, **new-business strain** as a percentage of capital and the resulting capital-generation self-sufficiency.

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## How to value companies in this sector

Insurers are valued on capital and the present value of the profits that will be released from that capital. **Never EV/EBITDA. Never an FCF-based DCF.**

**General / P&C (developed and India)**
- Primary: **price to book, or better, price to tangible book excluding AOCI**, anchored to sustainable operating ROE via the justified-multiple relation `P/B ≈ (ROE − g) / (COE − g)`. A carrier earning 10% ROE against a 10–11% cost of equity is worth roughly 1x book; sustained 15–18% operating ROE with sub-95% combined ratios supports 2–4x book. Adjust reported book for suspected reserve deficiency or redundancy — **reserve-adjusted book is the real denominator**.
- Secondary: **P/E on operating EPS**, explicitly excluding realized gains and prior-year development. Roughly 10–16x for diversified P&C; higher for specialty franchises with a durable underwriting edge. Indian general and standalone health insurers trade at premium P/E and P/B on growth runway and low insurance penetration, not on superior combined ratios — state that explicitly rather than concluding they are "expensive versus global peers".
- Reinsurers and property-cat writers: closer to 1.0–1.5x tangible book with mean-reverting P/E, because earnings are event-driven and a single year proves nothing.

**Life**
- India and most of emerging Asia: **P/EV** is the standard (Indian listed life insurers have historically spanned roughly 1.5–3.5x IEV, compressing toward the ~1.7–2.5x area more recently). Because EV captures only the existing book, the market pays for future new business through the **appraisal value**: `Appraisal Value = EV + (VNB multiple × current-year VNB)`. Back out the implied multiple as `(Market cap − EV) / VNB`; roughly 10–25x is the observed band and it is the cleanest way to read what growth expectation is embedded in the price. Cross-check operating RoEV against the P/EV paid — the same logic as ROE versus P/B.
- Developed markets under IFRS 17: the emerging convention is **price to (adjusted book value + CSM net of tax)**, plus multiples on the CSM stock and on new-business CSM, since the CSM is the stock of unearned future profit. Many European insurers now guide on Solvency II own-funds and free-capital generation rather than EV, valued on P/(BV+CSM) plus dividend / cash-remittance yield.
- Tie-breaker and the fundamentally correct method for any insurer: a **distributable-earnings (free-surplus) model** — project statutory profits, subtract the increase in required regulatory capital, discount the surplus actually distributable at the cost of equity. In practice a two- or three-stage dividend discount model. It is the only DCF variant that respects the capital constraint.

**Composites and holding companies.** Sum-of-the-parts is mandatory: life on P/EV or appraisal value, general on P/B against its own ROE, health on P/E, asset management on % of AUM or P/E, lending on P/B — then apply a holding-company discount (commonly 20–40% in India for financial conglomerates and for bank/NBFC parents of listed insurance subsidiaries). Never apply one blended multiple to consolidated group numbers.

**Do not use, and say why if a screener offers them:** EV/EBITDA (EBITDA undefined), EV/Sales (enterprise value is meaningless when debt-like liabilities are policyholder funds), FCF yield (new-business strain inverts the sign), PEG on reported EPS, and any DCF of operating cash flow.

**Cross-checks that beat any single multiple:** growth in book value per share plus dividends over 5–10 years for P&C; growth in EV per share (or EV + dividends) for life; cumulative cash remitted from subsidiaries to the holding company versus cumulative reported profit. These compound measures cut through single-year accounting noise.

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## Peer set construction

A valid comparable shares **line of business, tail length, regulatory regime and accounting basis**. Get any of those wrong and the ratios are not measuring the same thing.

Splits that must never be mixed:
- **Life vs general vs health vs reinsurance.** Different metrics entirely (VNB/EV vs combined ratio vs MLR vs event-driven book value). Never rank them in one table.
- **Carriers vs brokers, aggregators, TPAs and MGAs.** Brokers and TPAs take no underwriting risk, are capital-light with recurring commission revenue, and *are* correctly valued on EV/EBITDA (typically 15–25x) and P/E. Putting a broker in a carrier peer set makes every carrier look capital-inefficient and every broker look expensive.
- **Long-tail vs short-tail P&C.** Casualty, liability and motor third-party pay out over 5–15 years and carry huge reserve estimation risk; property, motor OD and travel settle within a year. Reserve development means completely different things in each.
- **Life product mix.** A protection/annuity-led writer, a ULIP-led writer and a par-savings-led writer have structurally different margins, capital intensity and rate sensitivity. Compare VNB margin only after normalising for mix, or compare mix-adjusted margin trends instead of levels.
- **Retail vs group vs government-scheme health.** Retail health is a renewal annuity with 65–75% loss ratios; group health is often written near or below cost to win corporate relationships; government schemes (India: PMFBY crop, PMJAY-linked business, state schemes) carry political pricing and slow state receivables.
- **Accounting regime.** IFRS 17 versus IFRS 4 versus Indian GAAP (IRDAI-prescribed formats) versus US GAAP post-LDTI versus US statutory. Book value, revenue and profit are not comparable across these without adjustment. India has deferred Ind AS 117; until it lands, Indian insurers' reported numbers are not directly comparable to IFRS 17 filers.
- **Regulatory regime and capital standard.** Solvency ratio under IRDAI's factor-based rules, Solvency II's risk-based SCR and US RBC are not the same scale — 200% means different things in each.
- **Listed subsidiary vs group parent.** Compare the Indian listed life arm against other listed life arms, not against the promoter bank or the conglomerate parent.

Practical construction: 4–8 peers from the same sub-sector and market, plus 2–3 developed-market benchmarks *only* to frame what best-in-class underwriting looks like — never to conclude that an Indian carrier is over- or under-valued on an absolute multiple, since growth runway and penetration differ by an order of magnitude.

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## Sector-specific red flags

- **Reserve releases carrying earnings.** Calendar-year combined comfortably below 100% while the current-accident-year ex-cat loss ratio deteriorates. Check the development triangle for the newest accident years being set at optimistic initial loss picks, and for IBNR shrinking as a share of total reserves.
- **Premium growth far above market in a soft (falling-price) market, with a better-than-peer reported loss ratio.** The loss surfaces three to five years later. Highest-risk version: long-tail casualty, liability and motor third-party.
- **Reinsurance as financial engineering.** A large new quota-share that lifts solvency and books ceding commission upfront; finite/structured covers with limited real risk transfer; retrocession into related-party or offshore captives; recoverables ballooning past ~50% of equity with concentrated or weakly rated counterparties.
- **EV or VNB growth driven by assumption changes rather than new business.** Read the EV movement analysis. If "change in operating assumptions", "modelling refinements" or a lower risk-discount rate is doing the work — while persistency assumptions are being *raised* — the reported margin is an accounting choice. Unaudited EV, a change of actuarial consultant, or a switch of EV methodology are amplifiers.
- **Persistency contradicting reported margins.** Falling 13th-month persistency, or 61st-month below ~45%, alongside record VNB margins. Usually means mis-selling, single-premium or short-pay churn, and future negative persistency variances.
- **Low-quality APE/premium growth.** Single-premium and group fund-management business inflating headline premium; ULIP-led growth in a rising market that reverses when markets fall; unusually large March-quarter loading (India); growth concentrated in one bancassurance partner whose contract is up for renegotiation.
- **Solvency drifting toward the floor** (below ~170% in India, below ~140% SCR coverage in Europe, RBC heading toward 250%), or solvency maintained by repeated subordinated-debt issuance and quota-share treaties rather than by internal capital generation. This precedes dilution or a growth stop.
- **Chronic adjusted metrics.** Habitually presenting the combined ratio "ex-catastrophe", "ex-COVID", "ex-one-offs", or including policyholder investment income to get under 100%. Catastrophes are a recurring cost, not an exception.
- **Reaching for yield.** Rising allocation to below-investment-grade credit, private/illiquid credit, commercial real estate, structured or Level 3 assets, or affiliate and promoter-group securities; or a large unrealized loss parked in held-to-maturity so it never touches book value while duration is mismatched against liabilities.
- **Long-dated guarantees without matching assets.** Life insurers writing heavy non-par guaranteed or annuity volumes without ultra-long assets — acute in India given limited supply of very long bonds and a shallow derivatives market. Attractive VNB margins there are compensation for uncompensated rate and longevity risk.
- **Profit sustained by not paying claims.** Falling loss ratio alongside rising repudiation, lengthening settlement turnaround and a rising grievance ratio. It reverses through regulation, ombudsman rulings and lost renewals.
- **India line-specific landmines.** Crop insurance (PMFBY) volatility with large slow-paying state-government receivables; motor third-party pricing set by regulation rather than by the insurer; group health written below cost to win mandates; aged "premium due from agents/intermediaries" that is effectively unrecognised bad debt.
- **DAC and CSM aggression.** Pre-IFRS 17, aggressive deferred acquisition cost capitalisation and amortisation; under IFRS 17, a CSM that keeps growing on assumption unlocks while cash generation and dividend remittances stagnate. The reliable cross-check: cash actually remitted from operating subsidiaries to the holding company versus reported group profit. Years of rising earnings without rising remittances means the profit is not real yet.
- **Governance and structure signals.** Frequent auditor or appointed-actuary changes; restatement of reserves or EV; related-party investments and reinsurance; commission structures pinned at the EOM cap; regulatory penalties for mis-selling or expense-cap breaches.

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## Cycle and structural context

**The underwriting cycle dominates P&C returns.** Capital floods in after profitable years, prices soften, terms loosen, and reserves set in soft years prove deficient; a large loss event or reserve blow-up destroys capital, prices harden, and the best underwriting years are written into hard markets. Establish where you are before extrapolating any combined ratio. Rate-change disclosures (US carriers publish renewal rate change; Indian insurers disclose far less) and industry capacity commentary are the tell. The corollary: a carrier growing fastest at the bottom of the cycle is usually buying business, and one shrinking in a soft market is often the better underwriter.

**Interest rates drive life more than anything management does.** Rising rates lift new-money yields, improve annuity and non-par guaranteed economics and raise VNB, but hit reported book value through mark-to-market; falling rates do the reverse and can make long guarantees written at high rates ruinous. Distinguish operating RoEV from economic variance in every EV walk.

**Health runs on the medical-cost trend cycle,** not the underwriting cycle: utilisation rebounds, provider price negotiations, new high-cost therapies (obesity and specialty drugs are the current driver globally), and — in the US — Medicare Advantage rate notices, risk-model recalibration and star-rating changes. Pricing is filed months ahead of the risk period, so a trend surprise cannot be repriced until the next cycle.

**Structural growth versus structural threat.** India's under-penetration is real: insurance penetration and protection gaps remain far below developed markets, and the regulator's stated ambition of broad insurance access supports multi-decade volume growth — which is why Indian carriers trade above global multiples. Against that: distribution disruption (online, aggregators, embedded insurance) compresses commissions but also disintermediates incumbent agency franchises; telematics, AI underwriting and claims automation reward scale and data; climate change is systematically re-pricing property-cat and making some geographies uninsurable; and social/legal inflation is lengthening the tail in casualty lines.

**Regulation is a first-order earnings driver, not background.** In India: IRDAI's EOM caps, surrender-value regulations that raised early-exit payouts and pressured non-par margins, motor TP tariff decisions, the composite-licence and 100% FDI proposals, Bima Sugam-style distribution platforms, and the Sept-2025 GST exemption on individual life and health premiums (which removed input tax credit and raised net expense burden). Globally: IFRS 17 adoption, Solvency II reviews, US LDTI, ACA MLR floors and rebates, and state rate-approval regimes that can deny needed increases. Any of these can move a whole sub-sector's margin by hundreds of basis points independent of company quality — attribute margin moves to regulation before crediting management.

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## India vs global notes

**Regulators and filings.** India: IRDAI is the single regulator; listed insurers file quarterly **public disclosures in prescribed L-forms (life) and NL-forms (general)** covering premium, claims, expenses, solvency, persistency, and the analytical ratios — these are richer than the annual report for ratio work. The IRDAI Annual Report and Handbook on Indian Insurance Statistics give sector and per-insurer incurred claims ratios, settlement ratios and grievance data. Amounts are in crore/lakh — normalise before comparing globally. US: 10-K and 10-Q on EDGAR plus **NAIC statutory filings (Schedule P triangles, RBC)**, which often reveal more about reserves than GAAP. Europe/UK: IFRS 17 accounts plus the **Solvency and Financial Condition Report (SFCR)** for capital detail.

**Accounting basis (the biggest comparability trap).** India still reports on IRDAI-prescribed formats under Indian GAAP with Ind AS 117 deferred; developed markets are on IFRS 17 (CSM, insurance revenue, no premium line as revenue) or US GAAP post-LDTI (annual assumption review, market-risk-benefit fair valuation). Because of that, "revenue", "profit" and "book value" for an Indian insurer and an IFRS 17 filer are not the same constructs. India also retains **Embedded Value as the primary life yardstick**, whereas Europe has largely moved to CSM and Solvency II own-funds generation.

**Life reporting conventions.** India headlines APE, New Business Premium, VNB, VNB margin, IEV, operating RoEV and 13th/61st-month persistency — check the definitions in the investor presentation, since APE treatment of group and single premium varies. Developed markets emphasise new-business CSM, sales by product, lapse rates and free-capital generation.

**Capital standards.** IRDAI runs a factor-based required solvency margin with a 150% minimum (with a risk-based capital regime long under discussion); Europe runs the risk-based SCR; the US runs RBC against the authorised control level. Do not compare the headline percentages across regimes — compare each against its own regime's action levels and peer norms.

**India-specific structural features to check.** Mandatory obligatory cession to GIC Re and the cession order of preference; the EOM cap regime; motor third-party premiums set by the regulator; PMFBY crop insurance with state-government receivables; bancassurance dominance and the concentration risk that creates; promoter/parent bank shareholding and related-party distribution economics; and CARO/auditor observations plus concall commentary as an under-used source on receivables, reinsurance arrangements and reserving philosophy. Indian disclosure of **loss-development triangles is far thinner** than US Schedule P — compensate with IBNR-to-reserve trends, the appointed actuary's certificate, and line-level incurred claims ratios from IRDAI data.

**Valuation convention divergence.** India/emerging Asia: P/EV and implied VNB multiple for life, P/B and P/E for general and health, with premium multiples justified by penetration runway. Developed markets: P/(BV + CSM), P/TBV ex-AOCI, dividend and buyback capacity from remittances. Applying the developed-market multiple set to an Indian insurer (or vice versa) is the most common valuation error in this sector.

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## Checklist

- [ ] Identify the sub-sector first — life, general/P&C, standalone health, reinsurer, composite, or non-carrier (broker/TPA/aggregator) — and load the right metric set.
- [ ] Suppress every generic ratio that is undefined here: OPM, EBITDA, EV/EBITDA, ROCE, current ratio, inventory/receivable turnover, FCF yield, asset turnover. Say why in the output rather than reporting them as weaknesses.
- [ ] State which premium base the company headlines (GWP / NWP / NEP / insurance revenue / APE / NBP) before quoting any growth number.
- [ ] P&C/health: compute combined ratio and split it into loss and expense; then isolate **current-accident-year ex-cat** loss ratio.
- [ ] Quantify prior-year reserve development as % of opening net reserves for at least 5 years; check triangles or IBNR-to-reserve trends.
- [ ] Life: compute VNB, VNB margin, APE growth, operating RoEV, and read the full **EV movement analysis** — separate unwind + VNB from assumption changes.
- [ ] Life: pull 13th- and 61st-month persistency on both premium and policy-count bases; test them against the VNB margin trend for contradiction.
- [ ] Health: compare PMPM cost trend with filed/achieved pricing trend, and check MLR against regulatory floors and membership retention.
- [ ] Check solvency (IRDAI / SCR / RBC) level, trend and composition; note reliance on sub-debt or quota share.
- [ ] Check reinsurance: cession ratio trend, recoverables vs equity, counterparty concentration, any new quota-share treaty.
- [ ] Check the asset side: duration gap, below-investment-grade and Level 3 share, HTM unrealized losses vs equity, related-party holdings.
- [ ] Compute operating ROE ex-AOCI and ex-realized gains, plus NWP/equity underwriting leverage.
- [ ] Read the operational KPIs — claims settlement ratio, repudiation, TAT, grievance ratio, product and channel mix, bancassurance concentration.
- [ ] Value with the right tool: P/TBV ex-AOCI anchored to operating ROE for P&C; P/EV plus implied VNB multiple for Indian life; P/(BV+CSM) for IFRS 17 filers; SOTP with a holding-company discount for composites; free-surplus DDM as tie-breaker.
- [ ] Cross-check with 5–10 year book-value-per-share-plus-dividends (P&C) or EV-per-share (life) compounding, and with subsidiary cash remittances versus reported profit.
- [ ] Build the peer set within sub-sector, tail length, accounting regime and market; never mix carriers with brokers or life with general.
- [ ] Place the company in the cycle (P&C pricing, rate environment for life, medical trend for health) and name the live regulatory changes before extrapolating any margin.
- [ ] Treat every healthy range above as indicative — conclude on peer-relative and own-history comparison, and say which one drove the call.
