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Exam 6U (Personal) > NAIC IRIS > Flashcards

NAIC IRIS Flashcards

1
Q

What is IRIS for?

A

-used in targeting insurers in need of greatest attention
-not intended to replace state in-depth solvency monitoring efforts

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2
Q

What are the IRIS 1,2,3,4 Branded Risk Classifications?

A

Pricing / Underwriting
Strategic

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3
Q

When should insurers have a lower IRIS 1,2 ?

A

-with higher concentrations of long-tail lines like WC (harder to reserve)

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4
Q

Why should you review the direct vs assumed split for IRIS 1?

A

-the insurer has less control over the assumed business (UW criteria used in selecting risks)
investigate the ceding entity further

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5
Q

Why is it okay for IRIS 1,2 to be unusual?

A

IRIS 1 = if insurer has stable profits and adequate quality reinsurance
IRIS 2 = if insurer has stable profits

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6
Q

Why should you review IRIS 1 on a consolidated basis?

A

If in a holding company, this can provide a sense of the degree of group leverage

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7
Q

Why is a high IRIS 3 a sign of?

A

-lack of stability in insurers operations / management
-entry into new business / geographic locations
-attempting to increase cash flow to meet current payments

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8
Q

What should you review when IRIS 3 is unusual?

A

-is IRIS 9 usual ? => sufficient liquidity to meet cash demands + Schedules A - E
-are loss reserves adequate ? (IRIS 11 - 13) + Schedule P
-unusual IRIS 11-13 could mean trying to get cash infusion to pay
off claims

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9
Q

When is an unusual IRIS 3 okay?

A

low IRIS 2, good IRIS 11-13, IRIS 5
relatively stable product mix

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10
Q

What is a low (negative) IRIS 3 a sign of?

A

-insurer trying to increase cash flow related to ceding commissions
-Review IRIS 4

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11
Q

What are 2 reasons why IRIS 4 is important?

A

high surplus aid could mean PHS is inadequate
surplus aid can improve other ratios and conceal important areas of concern (IRIS 1,2,7,10,13)

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12
Q

How should you adjust IRIS 7 for surplus aid?

A

Adjust prior and current year PHS!
all other adjustments for IRIS 4 not required to change numerator

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13
Q

Branded risk classification(s) for IRIS 5

A

Operational

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14
Q

What in particular should you consider when reviewing IRIS 5?

A

IRIS 11-13; prior year development on reserves can distort profitability

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15
Q

What should the analyst do with an unusual IRIS 11?

A

-recalculate IRIS 5 without 1yr reserve development included

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16
Q

IRIS 6 (Investment Yield) Branded risk classification(s)

A

Liquidity, Market, Strategic

17
Q

What annual statement pieces should you review for IRIS 6?

A

Schedules A - E, Exhibit of Net Investment Income to determine yields

18
Q

What can cause low IRIS 6?

A

-speculative investments (low in short-term)
-big investments in affiliates / home office facilities / tax-exempt bonds
-large interest pmts on borrowed $
-VERY high investment expenses (net investment inc earned after all)

19
Q

High IRIS 7 indications

A

instability, can be related to shifting of capital from other companies within a group, or M&A

20
Q

IRIS 7,8 Branded risk classifications

A

operational, strategic

21
Q

What can affect IRIS 7?

A

basically anything in the capital and surplus account
change in ownership or leadership direction

22
Q

What is the purpose of IRIS 8 in relation to IRIS 7 ?

A

to view changes in C&S only due to operations, not C&S paid or transferred in surplus notes
capital changes can mask changes in surplus directly tied to operational issues

23
Q

Why is IRIS 9 important?

A

many insurers who become insolvent increase it in their final years
so, consider the trend as well as the current year result

24
Q

What can cause a high IRIS 9?

A

companies with large deposits with reinsured companies (not in assets, offsetting liabilities included though)

25
Q

What should further analysis of IRIS 9 focus on?

A

adequacy of reserves
proper valuation, mix, and liquidity of assets to determine whether they can meet PH needs

26
Q

Further analysis for IRIS 10

A

check if AB over 90 overdue are classified as admitted

27
Q

What may the insurer be doing if IRIS 12 is consistently worse than IRIS 11?

A

intentionally understating reserves or deficiencies are appearing as losses paid

28
Q

What can cause adverse IRIS 11,12 ratios?

A

strengthening of deficient prior reserves
commutations
changes in tabular discounts
write-offs for uncollectible reinsurance

29
Q

What can distort IRIS 13?

A

changes in premium volume
product mix - more liability => understated deficiencies
calculate the ratios separately by product mix
can be used to determine whether insurer has corrected past deficiencies

Exam 6U (Personal) (29 decks)

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