Flashcards in B2. NAIC IRIS Deck (21):

1

## Equation and Normal Range for GWP: PHS

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Equation: GWP/PHS

Normal Range: under 900%

2

## Factors to consider if Ratio 1 is unusual

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-compare to Ratio 2

-line of business

-profitability

-direct vs assumed business

3

## Equation and Normal Range for NWP: PHS

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Equation: NWP/PHS

Normal Range: under 300%

4

## Factors to consider if Ratio 2 is unusual

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-if member of group of affiliates, what is the aggregate ratio?

-profitability

-line of business

-adequacy of reinsurance protection

5

## Equation and Normal Range for Change in NWP

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Equation: (Current NWP - Prior NWP)/Prior NWP

Normal Range: Between -33% and 33%

6

## Factors to look into if Change in NWP ratio is unstable

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-are the assets properly valued and liquid enough to meet cash demands

-are the reserves adequate?

7

## Equation and Normal Range for Surplus Aid: PHS

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Equation:

Surplus Aid/PHS

Surplus Aid = Ceding Commissions Ratio * Sum of UEPR (Non affiliates)

Normal Range: under 15%

8

## Increased NWP does not necessarily mean there is a greater chance of insolvency, if it is accompanied by:

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-low NWP: PHS ratio (Ratio 2)

-adequate reserving (Ratios 11, 12, 13)

-profitable operations (Ratio 5)

-stable product mix

9

## Equation and Normal Range for 2yr overall operating ratio

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Equation: 2yr Loss Ratio + 2yr Expense Ratio + 2yr Investment Ratio

Normal Range: under 100%

profitability of the insurer

10

## Issues related to a high Surplus Aid ratio

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-it may indicate that management believes that surplus is inadequate

-surplus aid may improve the results of the other ratios to such a degree that it conceals important areas of concern.

11

## Equation and Normal Range for Gross change in PHS

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Equation:

Change in PHS/Prior PHS

Normal Range: Between -10% and 50%

Change in financial condition

12

## Equation and Normal Range for Investment Yield

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Equation:

2 *(Net Investment Income Earned)/

(Cash and Invested Assets between Current and Prior Yrs)

Normal Range: Between 3% and 6.5%

Quality of investment portfolio

13

## Equation and Normal Range for Adjusted Liabilities: Liquid Assets

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Equation: Adjusted Liabilities = Liabilities - Liabilities equal to Deferred Agent's Balances

Liquid Assets = Liquid assets - investments in parents, subsidiaries and affiliates

Normal Range: under 100%

Measure insurers ability to meet financial demands

14

## Equation and Normal Range for Change in adjusted PHS

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Equation:

(Change in Adjusted PHS)/Prior PHS

Change in Adjusted PHS = Change in PHS - Change in Surplus Notes - Capital Paid in - Surplus Paid in

Normal Range: Between -10% and 25%

Change in financial condition based on operational results

15

## Equation and Normal Range for 1yr Reserve development to PHS

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Equation:

(One year reserve development)/prior PHS

Normal Range: under 20%

Reserves net of SandS and gross of discounts***

16

## Equation and Normal Range for Gross Agents Balances: PHS

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Equation:

(Gross Agents Balances in the course of collection)/PHS

Normal Range: under 40%

Can usually not be converted to cash in the event of a liquidation

17

## Equation and Normal Range for Estimated Current Reserve Deficiency to PHS

###
Equation:

Deficiency/PHS

Reserves Required = Premiums Earned *Ratio of Reserves: Premium

Normal Range: under 25%

Measures adequacy of current reserves

-Increase in premium overstates deficiency

-Shift to longer tail lines will understate deficiency

18

## Denominator of Investment Yield

### Cash and Invested Assets/Investment income due and accrued/borrowed money(subtract)/Current Year Net investment income earned

19

## Analyst Team System

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Consists of financial examiners and analysts from the NAIC. Identify companies requiring immediate attention.

Insurers are categorized into one of 3 levels:

Level A: requires immediate attention and financial analysis

Level B: does not require immediate attention, but may possibly have poor results

Reviewed, No Level

20

##
2 yr loss

2 yr expense

2 yr investment income

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Loss=loss lae and policyholder div

Expense=other UW exp and write ins-other income

Invest- investment income

21