If you believe that insurance companies set rates based on income vs losses, you're missing a lot of the equation: 1. Time value of money, 2. market strategy.
1. If I have $14 billion in my desk drawer and I can make 2.5% by keeping it in the desk drawer for a few extra days, I can make some reral money. My actuaries know in advance ewxactly how much money I'll need to pay out nexct mon th and next year. They just don't know whose name will be on trhe check.
2. With $14 billion in the cash drawer, I set rates to adjust market share. Opening a new territory that looks promising, set low rates. Too much market share someplace for geographic diversification, raise the rates.
Because of the actuarial predictability of large numbers, insurance companies can make money in a variety of ways that you don't see. Buying, selling and managing pension funds is one. Retroactive disaster insurance is another.
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