The Combined Ratio of Bimeh Iran at year-end 2001 was 95.7%, which is almost the same as the market average of 94.4%. The expense ratio of the Company has been almost constant for the last five years and well below the market average. This shows that the Company is not incurring as many expenses in its underwriting operations as the average company in the region. The loss ratio figure hasn’t changed in big proportions over the past five years (from 82% in 97 to 86% in 2001). This indicates that the Company is controlling its loss ratio.
The Company’s underwriting operations in 2001 registered a profit of IR 28 billion, almost 53% of the pre-tax profit for that same year (IR 53 billion). This shows that the Company relied on its investment income as much as on its underwriting business to generate its net profits. Given that its pre-tax profits for the year 2001 increased greatly compared to the previous year’s figure, the Company’s return on equity 21.3% is much higher than the market average of 4%. However, if we are to take into consideration the revaluation of assets, the return on equity will increase substantially due to unrealized gain. But at the same time, the return on equity will decrease if the Company’s other technical reserves are reclassified and transferred to other shareholders funds. Nevertheless, the Company would still enjoy high earnings and positive return on equity figures.
The Company’s reserves as part of total equity (Technical Reserves/Shareholders Fund) have increased from 1997 to 1999. In the year 2000, this ratio dropped sharply because of the introduction of the unified exchange rate that was higher than the previous ones, which resulted in an increase in shareholders’ funds. Then, in 2001, this ratio increased again. Although the actual figure of this ratio at year-end 2001 (854%) remained much higher than the market average of 192%, it did not take into account the real value of the Company’s assets. If Bimeh Iran’s assets are to be revaluated and the other technical reserves are reclassified and transferred to other shareholders funds, then the Company’s reserves as part of total equity will drop to almost 41%. Thus, it will become much better than the market average. Although the real value of this ratio is well below the market average of 192%, it risks to strain the Company’s underwriting operations if it rises again, especially that the Company did not hold IBNR in 2001 or premium deficiency reserves. However, the Company enjoys careful codification that is necessary for the accumulation of risk. Over the past five years, the Company’s volume of premiums increased. Thus, Bimeh Iran had to increase its technical reserves. The Company also keeps maximum reserves (always set at the upper limit) in order to be able to meet potential losses. In addition, the state-owned company does not keep sufficient capital, compared to its volume of premiums and technical reserves. Additional technical reserves are also held, even though they are not calculated on a systematic basis. The Company doesn’t discount any of its liabilities. All these factors explain why the Company’s reserves as part of total equity have been rising since 1997.
The Company’s current retrospective reserving method does not account for future requirements. Prospective reserving method provides a better idea about such requirements needed to stand any potential loss. Currently, the Company does not make use of external reserving expertise. If Bimeh Iran seeks external advice when it comes to reserving, it could be more aware of possible reserving discrepancies (under/over-reserving). Currently, Bimeh Iran does not use triangulation because of state regulations. But the Company could make use of triangulation and still preserve state regulations.