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Regulatory capital, ROTE against cost of equity, and why EV is meaningless. 4 questions
An insurance FIG interviewer asks this when testing whether a candidate can connect risk transfer to earnings and capital.
You are preparing a P&C insurer earnings preview. Explain what reinsurance is, the two common structures, and how buying more of it changes the insurer's earnings, risk and capital needs.
Insurance is a cyclical business. This tests whether you understand the industry dynamics.
Explain the insurance underwriting cycle. Why do insurance margins fluctuate so much, and what drives the cycle?
The float is what makes insurance unique. This tests understanding of the investment side of the business.
Explain the insurance float and how insurers invest it. What are the constraints on investment strategy, and how does this affect profitability?
Insurance valuation uses different metrics than banking. This tests sector-specific knowledge.
What metrics do you use to value an insurance company, and how do they differ from bank valuation metrics?
Write your answer, get it graded on technical accuracy, completeness and communication, and see exactly which mechanic you missed.
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