B2. NAIC IRIS Flashcards
Equation and Normal Range for GWP: PHS
Equation: GWP/PHS
Normal Range: under 900%
Factors to consider if Ratio 1 is unusual
- compare to Ratio 2
- line of business
- profitability
- direct vs assumed business
Equation and Normal Range for NWP: PHS
Equation: NWP/PHS
Normal Range: under 300%
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
Equation and Normal Range for Change in NWP
Equation: (Current NWP - Prior NWP)/Prior NWP
Normal Range: Between -33% and 33%
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?
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%
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
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
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.
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
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
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
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
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***
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
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
Denominator of Investment Yield
Cash and Invested Assets/Investment income due and accrued/borrowed money(subtract)/Current Year Net investment income earned
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
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
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
