Hi, Could you please help me understand the difference between the 'profits' approach and the 'investment return less expenses' approach?
Hi Actuary20 A numerical example may help. An insurance company's accounts for last year show the following: Premiums 100 Claims 20 Expenses 5 Investment return 12 Increase in reserves 70 The profit would then be calculated as follows: Profit = 100 - 20 - 5 + 12 - 70 = 17 The investment return less expenses would be 12 - 5 = 7 So if the insurer is taxed on profits it would pay tax on 17, and if it paid tax on investment return less expenses it would pay tax on 7. Best wishes Mark
