Reinsurance Company Underwriting Model

The engine starts with a scenario selector that switches gross written premium growth between a steady base path and a hard-market vector that peaks then softens. Premium is split by property, casualty and specialty mix, then cession removes a fixed quota share to give net written premium.

• Net earned premium recognises written business across the current and prior year, while unearned premium sits on the balance sheet as a liability. Separately, investment income is earned on the opening invested asset balance, which represents the float of reserves and unearned premium, avoiding a circular calculation.
• Debt is a fixed schedule rather than a leverage target, so interest expense does not depend on equity.

Loss ratios differ by line, reflecting shorter property payouts and longer casualty tails, with claims inflation and rate change acting as opposing levers. A prior-year opening reserve is run off explicitly across the projection, so the block drains rather than lingering.

• Acquisition costs on written premium are capitalised and then amortised in line with premium earning, while general and administrative costs are expensed directly. Retrocession is modelled in two layers: a proportional quota share plus a non-proportional excess-of-loss layer with an attachment, limit, rate-on-line and one reinstatement.
• The layer costs premium every year, but in the catastrophe scenario it caps the net retained event loss and books a recoverable asset collected the following year.

Inputs feed a written and earned premium build, then claims reserving, investments and expense modules. These combine into an income statement covering underwriting profit, investment income, interest and NOL-sheltered tax, producing net income and dividends.

• The balance sheet rolls forward invested assets, reserves, deferred acquisition costs and retro recoverables, while the cash flow statement works indirectly from net income and working capital movements. Checks fan across all years to verify balance sheet identity, combined ratio construction, non-negative reserves and the cash tie.
• Outputs include combined ratio, return on equity, book value per share and a dual dividend-discount and justified price-to-book valuation bridge.

The template supports comparing underwriting and valuation outcomes across three documented settings: a base case, a hard market with stronger renewal rates, and a named catastrophe year.

• The catastrophe scenario routes a property loss shock through the excess-of-loss layer, so the net retained loss is capped and a smaller tax loss carries forward.
• A scenario-aware terminal price-to-book multiple and a terminal return-on-equity window that can exclude a one-off event year keep the valuation methods coherent.
• This makes the model useful for exploring how pricing adequacy, reserve run-off, retro cost and capital interact, rather than for predicting a specific market outcome or share price.