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> It's in the return on investments the insurer makes with the money they hold in trust

...sourced from the premiums. When they pull in more premiums, they have more money to invest.




No, it's sourced from the initial capitalization of the firm and then realized returns that are reinvested. You can't offer insurance until you're capitalized enough to handle claims on the same day the policy takes effect.

Ideally the premiums will cover payouts and day-to-day business expenses, so the invested money can just keep being reinvested, hopefully into longer term and more aggressive investments. The premiums and payouts get rolled into underwriting profit/income. And that can eventually get rolled into new investments.

Here, look at state farm for 2019[1].

Their underwriting gain was $777 million on $65.2 billion in total premium. Their investment income was $5 billion with a net worth of over $100 billion, which is more than 6 times larger their underwriting premiums.

Their profit ratio for underwriting is like 1.2% because they're not trying to maximize that profit. A large reason they're not trying to maximize it is that for admitted policies, there's usually an upper limit to how much aggregate premium can go to anything other than paying out claims (eg: [2] and [3]).

So for an insurer, they don't want to set themselves up to depend on premiums to fund the investment arm because 1) there's an upper limit on how much aggregate premium can go towards anything other than claims 2) there's no limit on how much aggregate premium can go towards claims, 3) growing premium haphazardly can result in less money available for investing due to other regulations that limit risk and require a certain amount of liquidity for claims.

[1]: https://newsroom.statefarm.com/2019-state-farm-financial-res... [2]: https://www.law.cornell.edu/regulations/california/10-CCR-Se... [3]: https://consumerfed.org/press_release/auto-insurers-reaped-n...


The seed comes from initial investment, but if premiums weren't a major component of growth they'd just be an investment firm.

They don't have control over investment returns for the most part, so premiums are the only avenue for growth that they can do something about.




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