Other Factors

A number of other factors also enter into this equation, including the company's tax position, the type and design of the policies it sells and the investment policy it adopts (if it makes unsuccessful investments, this clearly worsens its position).

But the outcome of all these factors is that for any company at any time there is an optimum rate of growth. If it grows too fast, its expense ratio will rise and it will suffer from "new business strain"; if it grows too slowly, its expenses ratio will also rise, though in this case there will be no new business strain.

Large established companies find it much easier to plan and control their expansion than new or small companies, but in every case there are bound to be fluctuations from the optimum course, as a result of factors beyond the company's control. When money is very tight and people are saving less, any company will find it harder to sell as many policies as it would like.

On the other hand, a company may find itself in the position of being embarrassed by very large numbers of new policies of a particular type being taken out because of its previous success in that area.

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Finance Expansion

In an established company, the "free" reserves are also used to finance expansion. Life insurance companies need to expand (that is, to generate more new premium income each year than they lose through claims or surrenders on existing policies) for two reasons. First, if they sell no new policies then their investment policy will become increasingly restricted because of the need to match future liabilities with greater exactitude. Secondly, at any point in time a life insurance company has a large amount of relatively fixed expenses - rent, rates, equipment, salaries, administration - which are... see: Finance Expansion

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