Insurance Companies and Dividends

[jamills102]

Hey!

Insurance companies currently mark any positive fluctuation in the price of held stocks as operating profit (regardless if the stock as held or sold). This fluctuation causes a problem when I own a sub that has an insurance company and they have to payout a ridiculous high divided. The best solution for this would probably be only count transfers from insurance company to holding company as profit.

Thanks!

[David]

In the real world, investment gains, including realized and unrealized gains are regarded as profits for insurance companies.

The programmer will change the AI behavior of insurance focused AI corporations so that the AI (if the AI can decide the dividend payout on its own) will pay the dividend based on the past 3 years' average profit.

[standardplayer]

In the real world, investment gains, including realized and unrealized gains are regarded as profits for insurance companies.

The programmer will change the AI behavior of insurance focused AI corporations so that the AI (if the AI can decide the dividend payout on its own) will pay the dividend based on the past 3 years' average profit.

I think you may have set up Insurance Company profits incorrectly causing profits to fluctuate too much because you include unrealized gains. Insurance Companies Investment Profits should be only based on Net Investment Income and Realized Gains. Unrealized Gains and Losses are typically booked as Other Comprehensive Income and do not affect the regular net Income line as they are reported after it.

Net Investment Income:
* Effective Yield = Interest Payments Received on Bonds + Amortized Premium or Discount
* Dividend Income from Minority Investments (Global Stock Market Companies should payout 25%-40% of their Earnings, averaging about 35%)
* Proportional Share of Business Net Income in Majority Holdings 50%+ Ownership

Realized Gains: Gain on Sale of Investments

[David]

Searched the Internet and found this article:
Insurers’ Earnings Volatility Tied to Equities Accounting Change
https://www.insurancejournal.com/news/n ... 491754.htm

It states: "A new requirement beginning Jan. 1, 2018 that companies recognize changes in the fair value of equity investments through their income statement."

[standardplayer]

Searched the Internet and found this article:
Insurers’ Earnings Volatility Tied to Equities Accounting Change
https://www.insurancejournal.com/news/n ... 491754.htm

It states: "A new requirement beginning Jan. 1, 2018 that companies recognize changes in the fair value of equity investments through their income statement."

Yeah I guess that is true for consolidated financial statements after further research. I would still recommend for game purposes that you use Net investment income and realized gains to focus more on operating earnings otherwise earning will be very volatile if your insurance company has a substantial equity portfolio which would detract from game play. Maybe you can report unrealized gains after Operating Earnings as other income so you still see it but get a much more realistic operating earnings from which dividends can be paid.

Even Warren Buffet disagrees with the new accounting pronouncement.
https://finance.yahoo.com/news/warren-b ... 44321.html

[saferain]

In the case of high cycle fluctuations, the spread of global stock market is too large, I usually use insurance funds to buy stocks at the p/e ratio of 14, and sell stocks at the p/e ratio of 28 or so.Both the real industry and the banking industry combined.Suggest a change in the volatility of global stock markets. Computer-run insurance companies generally do not survive a third financial crisis in this cycle.

[beamthegreat]

I agree something should be done about this. A minor gain or loss in investment gains causes huge fluctuations in the stock price - one of my insurance competitors marketcap jumped from 8bil to 100bil+ within a few years.

[David]

This will be improved in the upcoming post-release beta version 6.5.00.

Version 6.5.00
Improved the formula for determining the stock price of banks and insurance companies to reduce the stock fluctuation caused by irregular spikes or collapses of profits.