School of Business
Insurance, Premiums, Profitability
Corporate Finance | Insurance
Ferenczy, Brent, "Exploring Mechanisms Insurers Employ to Set Premiums and Maximize Profitability" (2022). Senior Honors Theses. 1174.
The insurance industry is a very complex segment of the macroeconomy. An explain will be given as to how these companies are able to maintain and maximize their profits, allowing them to remain in business. A key area in this process is the setting of premiums. This activity draws from many areas of the business model. This paper will start with a birds-eye view and telescope in, starting with standard business practices and ending with specific undertakings of insurance companies. Companies must keep adequate liquid funds. This is done mainly through forecasting cash outflows and investing their assets under management. Within the realm of investing, insurance companies also use hedging techniques to maintain a healthy cashflow.