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The magic triangle: growth, profitability and safety in the insurance industry

Author

Listed:
  • Martin Eling

    (University of St. Gallen)

  • Ruo Jia

    (Peking University)

  • Philipp Schaper

    (Swiss Reinsurance Company)

Abstract

We empirically investigate the trade-offs between three strategic goals of the insurance business: growth, profitability and safety. Analysing 1988 European insurance companies over 11 years with simultaneous equation models, we show that moderate firm growth is associated with high profitability, but extremely high growth is associated with low profitability (i.e. an inverse non-linear relationship). Our results show that less profitable insurers are taking more risks. Insurers that prioritise profit over growth in early periods are more likely to reach the ideal state of ‘profitable growth’ in later periods. Our results emphasise the need to jointly consider growth, profitability and safety in a multi-period context when evaluating firm performance.

Suggested Citation

  • Martin Eling & Ruo Jia & Philipp Schaper, 2022. "The magic triangle: growth, profitability and safety in the insurance industry," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(2), pages 321-348, April.
    • Handle: RePEc:pal:gpprii:v:47:y:2022:i:2:d:10.1057_s41288-021-00230-w
    DOI: 10.1057/s41288-021-00230-w
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