How to calculate the cost of insurance float?

[jogger08152]

I'm looking at some insurance companies and I'd like to understand how to calculate their cost of float, i.e., the gain or loss they incur on their underwriting.

Look at the combined ratio, defined as expenses plus losses, divided by premium income. If it's under 100% the company is making an underwriting profit. The spread over/under 100% is essentially the cost of the float.

Since companies can under-reserve in the short-term, look at the combined ratio over several years. Even then some long-tail risks may not show up for decades e.g. life insurance. For general insurers most of the policies are short-term so problems show up earlier.

Wonderful, thanks guys.