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Flashcards in B2. NAIC IRIS Deck (21):
1

Equation and Normal Range for GWP: PHS

Equation: GWP/PHS
Normal Range: under 900%

2

Factors to consider if Ratio 1 is unusual

-compare to Ratio 2
-line of business
-profitability
-direct vs assumed business

3

Equation and Normal Range for NWP: PHS

Equation: NWP/PHS
Normal Range: under 300%

4

Factors to consider if Ratio 2 is unusual

-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

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

-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

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:

-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

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

-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

Equation:
Change in PHS/Prior PHS
Normal Range: Between -10% and 50%

Change in financial condition

12

Equation and Normal Range for Investment Yield

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

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

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

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

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

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

Loss=loss lae and policyholder div
Expense=other UW exp and write ins-other income
Invest- investment income

21

Cash and invested assets for ratio 6

Current yr cash and invested + prior yr cash and invested + current yr income due and accrued + prior year income due and accrued - current yr borrowed money - prior year borrowed money - net investment income earned