Investment Income Reporting in the Property and Casualty Insurance Industry: A Critical Assessment

In the casualty insurance business, controversy centers around the extent to which property and casualty insurers benefit from the investment of premium dollars. The common practice among these firms in recent years has been to emphasize the generation of investment capital. Claim payouts on an industrywide basis thus have exceeded premium receipts. Clearly, investment activities and underwriting functions have become effectively interrelated in this industry. An analysis of income statement data and management summary statements for a sample of companies is conducted in order to explore the role of investment activities for property and casualty insurers. The Financial Accounting Standards Board (FASB) plans to amend some aspects of investment income reporting for insurance companies. Contrasts between current reporting requirements and the FASB proposal point out that the exposure draft is notably lacking with respect to implementation considerations. When adopted, the new report format should utilize the underpinnings of the FASB Concept Statements and show that underwriting and investment functions are separate.