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IRIS Flashcards

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1
Q

IRIS stand for

A

NAIC Insurance Regulatory Information System

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2
Q

IRIS Purpose

A

Provide state insurance departments with analytical solvency tools & databases to screen and review financial condition of insurers & target those in most need of regulation

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3
Q

2 key tools/ components of IRIS

A

1) Ratios

2) Analyst Team System

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4
Q

IRIS Ratio (1) GPW to Policyholder Surplus formula

A

Direct Premiums Wtn + Reinsurance assumed (affiliates & non affiliates) divided by Surplus

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5
Q

Primary function of Anaylst Team?

A

Identify insurers that need immediate regulatory attention

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6
Q

Gross Premium Written =

A

Direct Written Premium + Reinsurance Assumed (affiliates) + Reinsurance Asumed (non-affiliates)

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7
Q

Where is GPW found in yellow book?

A

Page 8 - UW & Investment Exhibit/Part 1B - Premiums Written / Line 35 Col.1,2,3

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8
Q

Where is Surplus found in yellow book?

A

Page 3 - Liabilities, Surplus & Other Funds / Line 37

Page 4 - Income Statement / Line 39

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9
Q

What does IRIS ratio (1) GPW to Surplus measure?

A

Adequacy of cushion to absorb losses (surplus) without subtracting reinsurance ceded

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10
Q

Usual range for IRIS ratio (1) GPW to Surplus

A

900 or 9:1 - Higher the ratio the more risk insurer has in relation to surplus.

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11
Q

What may indicate heavy reliance on reinsurance?

A

Large disparity b/w IRIS Ratio (1) GPW to Surplus and Ratio (2) NPW to Surplus

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12
Q

IRIS Ratio (2) Net Premiums Written to Surplus formula

A

Net Written Premium (NWP) divided by surplus

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13
Q

What does IRIS Ratio (2) NPW to Surplus measure?

A

Adequacy of surplus, net of reinsurance premium ceded

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14
Q

Usual range for IRIS ratio (2) NPW to Surplus

A

300 or 3:1

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15
Q

Where is NPW found in yellow book?

A

Page 8 - UW & Investment Exhibit/Part 1B - Premiums Written / Line 35 Col.6

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16
Q

Long Tail Business should have a higher ot lower GPW and NPW ratio to surplus?

A

Lower

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17
Q

Companies with stable profits (IRIS Ratio 5) can sustain a higher ot lower GPW and NPW ratio to surplus?

A

Higher

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18
Q

IRIS Ratio (3) Change in Net Premiums Written formula

A

Change in NWP between prior & current year divided by NWP prior year

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19
Q

IRIS Ratio (3) Change in Net Premiums Written indicates what?

A

Changes in operations or management:

Entry/Exit in LOB or geographic area; resticted writing due to losses or competition; increased reinsurance

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20
Q

Usual range for IRIS Ratio (3) Change in Net Premiums Written

A

-33% to +33%

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21
Q

IRIS Ratio (4) Surplus Aid to Policyholder Surplus formula

A

Surplus Aid divided by Surplus

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22
Q

Components of Surplus Aid

A

Reinsurance Ceding Commission Ratio multiplied by Total Unearned Premium (non affiliates) on which reinsurance recoverable (Sched F)

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23
Q

Where is reinsurance ceded (commissions) found in yellow book?

A

Page 11 / UW & Investments Exhibit Part 3 - Expenses

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24
Q

Reinsurance Ceding Commission Ratio formula

A

Reins. ceded commissions divided by reinsurance premiums ceded

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25
Where is reinsurance premiums ceded found in yellow book?
Page 8 / UW & Investments Exhibit Part 1B - Premiums Written/Col. 4&5
26
What is the usual range for IRIS Ratio #4 Surplus Aid to Surplus?
15 Percent
27
What is Schedule F in yellow book?
Reinsurance
28
Use of surplus aid reinsurance treates may mean what?
Mgt may be concerned policyholder surplus inadequate.
29
IRIS Ratio (5) Two Year Operating Ratio formula
2 Yr Loss Ratio + 2 Yr Expense Ratio - 2 Yr Investment Ratio
30
What does IRIS Ratio (5) Two Year Operating Ratio measure?
Profitability
31
What is the usual range for IRIS Ratio (5) Two Year Operating Ratio?
Less than 100
32
Loss Ratio formula (IRIS 5)
Losses & LAE (incurred) + Policyholder Dividend divided by Earned Premium
33
Statement of Income is found where in yellow book?
Page 4
34
What is basis of information on Statement of Income
Earned Premium (Not gross or written)
35
Most of information for IRIS Ratio (5) Two Year Operating Ratio is found where in yellow book?
Page 4, Statement of Income
36
Expense Ratio formula (IRIS 5)
Other UW Expenses (& Write Ins) - Other Income /Line 15 divided by NPW (Page 8 & Historical)
37
Investment Income Ratio formula (IRIS 5)
Net Invest Income Earned (Page 4) divided by Earned Premium
38
IRIS Ratio (6) Investment Yield formula
Net Invest Income Earned (Page 4) divided by [Avg Cash & Invested Assets (2 Yrs) page 2 + Invest Income Due (2 Yrs) page2 minus Borrowed Money (2 Yrs) page 3 minus Net Invest Income earned (Page 4)] x 200
39
Where is Net Investment Income Earned found in yellow book?
Statement of Income (Page 4) / Exhibit of Net Invest Income (Page 12)
40
What does IRIS Ratio (6) Investment Yield measure?
Percentage of annual income on investment portfolio
41
What is the range for IRIS Ratio (6) Investment Yield?
3% - 6.5%
42
Low Investment Yields (IRIS 6) can be caused by?
1. Speculative Investments (low short term yield) 2. Invest in Affiliated Entities 3. Invest in facilities (HQ) 4. Tax Exempt Bonds 5. Interest Payments on borrowed money 6. High Investmetn Expenses
43
IRIS Ratio (7) Gross Change in Surplus formula
Gross Change in Surplus divided by Surplus Prior Year
44
What is range for IRIS Ratio (7) Gross Change in Surplus?
Less than 50% & Greater than -10%
45
What does IRIS Ratio (7) Gross Change in Surplus measure?
Improvement or deterioration in financial condition
46
Why is upper range of IRIS Ratio (7) Gross Change in Surplus so high?
Many insolvent insurers report dramatic increasein surplus prior to insolvency.
47
Possible reasons for drop below range (-10) for IRIS Ratio (7) Gross Change in Surplus.
1. Net Income 2. Unrealized Capital gains or losses (review investments - subsidiaries & non 3. Capital paid in/ transferred (IRIS Ration 8) 4. Dividneds to stockholders 5. Change in NonAdmitted assets 6. Change in surplus aid reinsurance.
48
IRIS Ratio (8) Change in Adjusted Surplus formula
Adjusted Surplus divided by Prior Year Surplus
49
Range for IRIS Ratio (8) Change in Adjusted Surplus
Less than 25 and greater than -10
50
Adjusted Surplus formula (for IRIS Ratio (8) Change in Adjusted Surplus)
Surplus - Chge in Surplus Notes - Capital Paid In/Transferred - Surplus Paid In/Transferred - Surplus Prior Year
51
IRIS Ratio (8) Change in Adjusted Surplus measures
Improvement or deterioration in financial condition based on operational results
52
Why are surplus notes/capital changes/surplus adjustments removed from surplus for IRIS Ratio (8) Change in Adjusted Surplus?
To highlight insurer's actual operations
53
IRIS Ratio (9) Adjusted Liabilities to Liquid Assets formula
Adjusted liabilites divided by liquid assests
54
What is "Adjusted Liabilites" in IRIS Ratio (9) Adjusted Liabilities to Liquid Assets?
Total liabilites (pge 3)- liabilites equal to deferred agents balances (pge 2)
55
What are "Liquid Assets" in IRIS Ratio (9) Adjusted Liabilities to Liquid Assets?
Total of: Bonds, Stocks, Cash & Short Term Investments, Receivable for Securities, Investment Income DUE (Page 2 Assets) MINUS Investments in parents/affiliates (Page 17 ie 5 Yr Historical)
56
Range for IRIS Ratio (9) Adjusted Liabilities to Liquid Assets
Below 100
57
What does IRIS Ratio (9) Adjusted Liabilities to Liquid Assets measure?
Abillity to meet financial demands
58
Are Agents' balances deferred & not yet due assets?
Yes, Page 2 of yellow book
59
Are Agents' balances deferred & not yet due liquid assets?
No / IRIS Ratio (9) Adjusted Liabilities to Liquid Assets
60
Are deposits held from reinsured companies (assumed reinsurance - not ceded) liquid assets?
No but reinsurance liabilities are incl. in total liab therefore can make IRIS Ratio (9) Adjusted Liabilities to Liquid Assets high.
61
IRIS Ratio (10) Gross Agents' Balances IN COLLECTION to Surplus formula
Gross Agents' Balances in Collecion divided by Surplus
62
Range for IRIS Ratio (10) Gross Agents' Balances IN COLLECTION to Surplus
Less than 40
63
What does IRIS Ratio (10) Gross Agents' Balances IN COLLECTION to Surplus measure?
Agents balances booked as written & billed to agents compared to surplus - to high may indicate balances over 90 days are being included as ADMITTED assets.
64
Are agents balances over 90 days old admitted assets?
NO - Non admitted only
65
IRIS Ratio (11) 1 Yr Reserve Development to Surplus formula
1 Yr Loss Reserve Dev (Page 35) x 1000 divided by surplus, PRIOR YEAR
66
Range for IRIS Ratio (11) 1 Yr Reserve Development to Surplus
Less than 20
67
What does IRIS Ratio (11) 1 Yr Reserve Development to Surplus measure?
Development of Upaid Losses & claims expense based on prior year reported losses & claims expense (paid & reserved, i.e., incurred)
68
What is Schedule P in yellow book?
Losses & Loss Expenses
69
Negative 1 Yr Reserve Development (Schedule P - Part 2)means what?
Reserves redundant
70
Positive 1 Yr Reserve Development (Schedule P - Part 2) means what?
Reserves deficient
71
Where is reserve development found in yellow book?
Schedule P - Part 2
72
What does a consistent adverse Ratio (11) /or/ Ratio (12) higher than Ratio (11) signify?
Potential understating reserves. Deficiencies appear as losses paid.
73
What would significant increases in IRIS Ratio (11) 1 Yr Reserve Development to Surplus mean?
Reserve strengthening
74
IRIS Ratio (12) 2 Yr Reserve Dev. to Surplus formula
2 Yr Reserve Dev (P /Part 2, pg 35) divided by surplus @nd PRIOR YEAR
75
Range for IRIS Ratio (12) 2 Yr Reserve Development to Surplus
Less than 20
76
What does IRIS Ratio (13) Est. Current Reserve Deficiency to Surplus measure?
Adequacy of current reserves. Differnce between estiatmed reserves required & actual reserves maintained.
77
Range for IRIS Ratio (13) Est. Current Reserve Deficiency to Surplus
Less than 25
78
Difference between IRIS Ratio (7) Gross Change in Surplus & IRIS Ration (8) Change in Adjusted Surplus
IRIS 7 measures change in insurer's financial condition during year whereas IRIS 8 measures same changes based only on operational results (no credit for capital contributions - page 4 income)
79
What are the "Overall" IRIS ratios?
1 - GWP to Surplus [900] 2 - NWP to Surplus [300] 3 - Change in NWP [-33 to +33] 4 - Surplus Aid to Surplus [15]
80
What are the "Profitability" IRIS ratios?
5 - 2 Yr Operating [100] 6 - Investment Yield [3 to 6.5] 7 - Gross Change in Surplus [-10 to 50] 8 - Change in Adjusted Surplus [-10 to 25]
81
What are the "Liquidity" IRIS ratios?
9 - Adjusted Liabilities to Liquid Assets [100] | 10 - Gross Agent's Balances to Surplus [40]
82
What are the "Reserve" IRIS ratios?
11 - 1 Yr Reserve Development to Surplus [20] 12 - 2 Yr Reserve Development to Surplus [20] 13 - Estimated Current Reserve Deficiency to Surplus [25]
83
Where is unearned premium on reinsurance recoverables (for surplus aid - IRIS Ratio 4) found?
Schedule F - Page 22 Column 13

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