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There is no confusion, 90% reduction in premiums directly leads to a 90% reduction in “float.”
by riskneutral 8y ago
There is no confusion, 90% reduction in premiums directly leads to a 90% reduction in “float.”
- codyb 8y agoWouldn't the insurance companies keep any float they'd received up until the sharp decline in coverage costs?
- riskneutral 8y agoYes, "float" is on the asset side of the insurer's balance sheet. As coverage costs decline, the liability side of the balance sheet will shrink, causing the insurance company to be overcapitalized. Shareholders will then demand that the excess capital be used to pay for share buybacks and dividends (thereby returning the excess capital to investors so that it can be more efficiently allocated).