# Reinsurance Company Underwriting Model Model reinsurance economics with premium growth by treaty, loss ratio assumptions, expense allocations, and underwriting ROE. Tracks combined ratio by line and includes catastrophe stress scenarios without assuming static combined ratios. - Canonical: https://finamodel.com/templates/reinsurance-model - Excel download: https://finamodel.com/templates/reinsurance.xlsx - Category: Insurance - Model type: Portfolio - Difficulty: Intermediate - Audiences: Investors & analysts, Credit & risk, Reinsurers, Insurance investors, Brokers, Rating agencies - Tags: reinsurance, underwriting, loss-ratios, combined-ratio, cat-modeling ## Overview Model reinsurance underwriting profit, loss reserves, and investment income for a multi-line reinsurer navigating hard and soft market cycles. This template projects gross written premium (GWP) with cession rates for retrocession, calculates net earned premium (NEP) using two-year earning patterns (policies earn 50% in year written, 50% next year), and applies loss ratios and expense ratios to compute combined ratio. Reserve adequacy is tracked through reserve development and loss payout triangles. The workbook contains a premium building sheet with NWP and UPR (unearned premium reserve) roll-forwards, a claims reserving sheet tracking incurred losses by cohort and payout patterns over 5+ years (long-tail lines carry reserves forward multiple years), an opex sheet with acquisition cost deferral via DAC (deferred acquisition costs), and an income statement combining underwriting profit (NEP less incurred losses and expenses) with investment income from the float. The balance sheet tracks loss reserves, DAC, and retro recoverables (receivables from retrocessionaires). Key ratios include loss ratio, expense ratio, combined ratio (target ≤95% for profitability), and premium/surplus ratio. Target users are reinsurance company CFOs, insurance-focused PE investors, underwriting managers, and analysts evaluating reinsurers by underwriting cycle and investment performance in the $500M to $10B market cap range. ## What's included - Reinsurance premium income by line and treaty type - Incurred loss ratio and loss development assumptions - Loss reserve adequacy and reserve strengthening scenarios - Catastrophe loss scenarios and tail risk modeling - Underwriting ROE and return on risk-adjusted capital - Underwriting expense ratios and cost allocation ## Reinsurance Model: How This Underwriting and Valuation Template Works This reinsurance model projects a mid-tier reinsurer across five annual periods, combining underwriting results, investment income and a stylised solvency view. It treats premium growth, cession and expenses as operating drivers, then flows them into three statements and a valuation. A values-only preview is available, so the relationships below describe the underlying structure rather than live calculations. ### Operating drivers: premium, cession and float 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 reserving, expenses and retrocession 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. ### Calculation flow and outputs 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. ### Practical use and scenario behaviour 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. ## Line-of-business segmentation Track premium, loss ratios, and profitability separately by property, casualty, specialty, and other lines to show where underwriting margins are earned. ## Loss development and reserve adequacy Model ultimate loss development, tail factors, and reserve adequacy by line to forecast future claims payments and reserve release or strengthening. ## Catastrophe and tail risk stress testing Include stressed scenarios for 100-year and 250-year natural disaster events to test capital adequacy and return on risk-adjusted capital. ## Line-of-business segmentation Track premium, loss ratios, and profitability separately by property, casualty, specialty, and other lines to show where underwriting margins are earned. ## Loss development and reserve adequacy Model ultimate loss development, tail factors, and reserve adequacy by line to forecast future claims payments and reserve release or strengthening. ## Catastrophe and tail risk stress testing Include stressed scenarios for 100-year and 250-year natural disaster events to test capital adequacy and return on risk-adjusted capital. ## Features - **Line-of-business segmentation:** Tracks premium, loss ratios, and profitability separately by property, casualty, specialty, and other lines. - **Loss development and reserving:** Models ultimate loss development, tail factors, and reserve adequacy to forecast future claims payments. - **Catastrophe modeling:** Includes stressed scenarios for major natural disasters and tail events to stress-test capital and returns. ## Use cases - **Underwriting strategy and profitability analysis:** Evaluate premium pricing, loss ratio targets, and capacity allocation by line to optimize underwriting ROE. - **M&A valuation and book value analysis:** Model combined company profitability and reserve run-off to support deal valuations. - **Capital management and dividend strategy:** Forecast excess capital and determine sustainable dividend levels based on earnings and catastrophe exposure. ## Frequently asked questions ### What is a reinsurance underwriting model? A model that projects reinsurance premium income, incurred losses, expense ratios, and underwriting ROE by line of business, used by reinsurers, investors, and rating agencies. ### What is a combined ratio in reinsurance? Combined ratio equals loss ratio plus expense ratio. A ratio below 100% indicates underwriting profit; above 100% indicates an underwriting loss offset by investment income. ### How do I model loss development and tail factors? Use historical loss development patterns by line to estimate ultimate losses, with longer tails applied to liability lines and shorter tails to property lines. ### Can I model multiple catastrophe scenarios? Yes. The model includes probability-weighted 100-year, 250-year, and maximum reasonable loss scenarios to test whether capital is adequate under extreme events. ### Who uses a reinsurance financial model? Reinsurers use it for underwriting strategy and pricing, insurance investors for book value analysis, and brokers and rating agencies for capacity and credit assessment. ## Related templates - [Insurance Portfolio Risk and Return Model](https://finamodel.com/templates/insurance-portfolio-model) - [Life Insurance Valuation Model](https://finamodel.com/templates/life-insurance-model) - [Captive Insurance Company Model](https://finamodel.com/templates/captive-insurance-model)