Most insurers monitor cash-flow in one form or another but in many cases it is omitted from the underwriter’s thinking, which often does not go beyond an assumed investment income (or discount) figure in the pricing formula. But within the same class of business differently sourced risks can have very different cash flow characteristics. These should be factored into the planning and actively applied to the risk selection process; particularly important where capacity is an issue. Again it is important that the underlying assumptions are there to be set against what actually happens.

While most of the attention will be focussed on the current underwriting year, earlier years are of significant importance. This is not just from the standpoint of how their development may affect the financial year’s trading result (important enough) but also how the dynamics behind their development, perhaps longer reporting times or higher average claims cost, impact the assumptions behind the current plan. It is bad enough to have to strengthen earlier years’ reserves but matters will be far worse if the underlying causes are not reflected in current pricing and policy terms.