Analysis and Valuation of Insurance Companies

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Analysis and Valuation of Insurance Companies

Industry Study Number Two

Center for Excellence in Accounting and Security Analysis
Columbia Business School established the Center for Excellence in Accounting and Security Analysis (CEASA) in 2003 under the direction of Professors Trevor Harris and Stephen Penman. The center aims to be a leading voice for independent, practical solutions for financial reporting and security analysis, promoting financial reporting that reflects economic reality, and encouraging investment practices that communicate sound valuations. CEASA’s mission is to develop workable solutions to issues in financial reporting and accounting policy; produce a core set of principles for equity analysis; collect and synthesize best thinking and best practices; disseminate ideas to regulators, analysts, investors, accountants, and management; and promote sound research on relevant issues. Drawing on the wisdom of leading experts in academia, industry, and government, the center produces sound research and identifies best practices on relevant issues. CEASA’s guiding criterion is to serve the public interest by supporting the integrity of financial reporting and the efficiency of capital markets. Located in a leading university with a mandate for independent research, CEASA is positioned to spearhead a discussion of issues, with an emphasis on sound conceptual thinking and without obstacles of constituency positions. More information and access to current research is available on CEASA’s website at http://www.gsb.columbia.edu/ceasa. CEASA is supported by its generous sponsors—General Electric, IBM, and Morgan Stanley—and gratefully acknowledges the support of these organizations and their recognition of the need for excellence in accounting and security analysis.

Industry Study Comment
These studies are intended to provide readers with a comprehensive review of the pertinent accounting conventions, academic literature, and approaches to security analysis.

This paper does not necessarily reflect the views of the center’s advisory board or the center’s sponsors.

Center for Excellence in Accounting and Security Analysis

ANALYSIS AND VALUATION OF INSURANCE COMPANIES

Doron Nissim; Ernst & Young Professor of Accounting and Finance, Columbia Business School

Center for Excellence in Accounting & Security Analysis

November 2010

Table of Contents
Overview....................................................................................................................................................................... 2  1. Business .................................................................................................................................................................... 3  1.1 Activities and Organization ................................................................................................................................ 3  1.2 Products and Services ....................................................................................................................................... 20  1.3 Distribution Channels ....................................................................................................................................... 25  1.4 Competition....................................................................................................................................................... 28  1.5 Regulation ......................................................................................................................................................... 30  1.6 Taxation ............................................................................................................................................................ 40  1.7 Risks and Risk Management ............................................................................................................................. 44  2. Financial Reporting and Line-Item...
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