MSA

Question 1

MSA: MCT

Answer 1

• Capital available / capital required
• Primary regulatory solvency test
• Minimum 150%

Question 2

MSA: GAAP ROE

Answer 2

= NI / Equity

• Return to shareholders per unit of invested capital
• Minimum 5.4%

Question 3

MSA: Return on Revenue

Answer 3

ROR = [UW Income + II (excl gains) + Income from Subsidiaries] / Gross WP

• Income relative to revenue generating capacity
• Minimum 6.2%

Question 4

MSA: Return on Assets After Tax

Answer 4

= NI after Tax / Avg[begYr and EndYr Assets]

• Measure of efficiency in generating income from assets
• Minimum 2.6%

Question 5

MSA: Insurance Return on Net Premium Earned

Answer 5

= [UW Income + II (excl. gains)] / Net Premium Earned

• Measure core earning capacity
• Minimum 4%

Question 6

MSA: Liabilities as % of Liquid Assets

Answer 6

= Liabilities / Liquid Assets

• Measures the insurer’s liquidity
• Higher ratio means less assets to back liabs
• BS values are used to measure liquid assets
• Maximum 105%

Question 7

MSA: Net Loss Reserves to Equity

Answer 7

= Net Loss Reserve / Equity

• High ratio could mean the insurer is exposed to financial distress due to the uncertainty in assessing unpaid claim liabs
• If this ratio is too high then small % deviations in o/s reserves can have devastating effects on solvency
• Maximum 200%

Question 8

MSA: 1-year Development to Equity

Answer 8

1-Year Dev Deficiency / Equity

• Measures an insurers 1-year dev margin or deficiency on unpaid claims to equity
• Adverse dev indicates underreserving, hence over-stated equity
• Includes II and discounted loss reserves
• Minimum -10%

Question 9

MSA: Overall Net Leverage

Answer 9

= (Net Written Premium + Net Liabs) / Equity

• Excessive premium writings relative to capital or deterioration in liabs will erode a company’s financial stability
• Maximum 500%

Question 10

MSA: Adjusted Investment Yield

Answer 10

2*(NII + OCI)/(begYr + endYr Invested Assets - NII - OCI)

• Measures income and capital gains relative to deployed assets
• Acceptable minimum 6%

Question 11

MSA: AOCI to Equity

Answer 11

= AOCI / Equity

• Unrealized capital gains/losses on A-F-S securities
• Measures AOCI’s proportion to overall capital

Question 12

MSA: Re Recoverables to Equity

Answer 12

= (RR from UEPR + RR from Unpaid Claims) / Equity

• Gross measure since not offset by payables
• Includes for S&S recoverables
• High ratio means the insurer depends on the recoverability of those funds and thus the financial health of the Re

Question 13

MSA: Net UW Leverage

Answer 13

= Net Written Premium / Equity

• Measure the company’s UW exposure relative to its capital base
• Usefulness reduced by the fact that WP is an imperfect proxy for exposure
• Maximum 300%

Question 14

MSA: 2-year combined ratio

Answer 14

= LR + Expense Ratio + (LAE / EP)

• Provides a smoother measure of the company’s UW performance than single year measure
• Under 100 % is profit

Question 15

MSA: Overall diversification score (1-100)

Answer 15

• Measures how closely the insurer tracks the overall Canadian market both geo and LOB spread
• Product of geo and LOB diversification scores, each within a 1-10 range
• Higher score means the company tracks closely to overall industry
• Scores in excess of 65 means the insurer is well-diversified
• Niche or regional insurers will have lower scores
• Low and high scores can be profitable
• Excludes ICBC
• If part of a group, looks at the group’s score

Question 16

What is Statutory Surplus?

What is Adjusted Equity?

Answer 16

• Statutory Surplus = Assets – Liabs – Required Reserves

* Adjusted Equity = Total Equity – Capital needed for CAT – Capital needed for Re ceded to unRe

Question 17

MSA: Combined ratio

Answer 17

( 1 - UW Income/NPE ) * 100