B2. NAIC IRIS

Question 1

Equation and Normal Range for GWP: PHS

Answer 1

Equation: GWP/PHS

Normal Range: under 900%

Question 2

Factors to consider if Ratio 1 is unusual

Answer 2

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

Question 3

Equation and Normal Range for NWP: PHS

Answer 3

Equation: NWP/PHS

Normal Range: under 300%

Question 4

Factors to consider if Ratio 2 is unusual

Answer 4

• if member of group of affiliates, what is the aggregate ratio?
• profitability
• line of business
• adequacy of reinsurance protection

Question 5

Equation and Normal Range for Change in NWP

Answer 5

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

Normal Range: Between -33% and 33%

Question 6

Factors to look into if Change in NWP ratio is unstable

Answer 6

• are the assets properly valued and liquid enough to meet cash demands
• are the reserves adequate?

Question 7

Equation and Normal Range for Surplus Aid: PHS

Answer 7

Equation:
Surplus Aid/PHS
Surplus Aid = Ceding Commissions Ratio * Sum of UEPR (Non affiliates)
Normal Range: under 15%

Question 8

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

Answer 8

• low NWP: PHS ratio (Ratio 2)
• adequate reserving (Ratios 11, 12, 13)
• profitable operations (Ratio 5)
• stable product mix

Question 9

Equation and Normal Range for 2yr overall operating ratio

Answer 9

Equation: 2yr Loss Ratio + 2yr Expense Ratio + 2yr Investment Ratio
Normal Range: under 100%

profitability of the insurer

Question 10

Issues related to a high Surplus Aid ratio

Answer 10

• 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.

Question 11

Equation and Normal Range for Gross change in PHS

Answer 11

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

Change in financial condition

Question 12

Equation and Normal Range for Investment Yield

Answer 12

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

Question 13

Equation and Normal Range for Adjusted Liabilities: Liquid Assets

Answer 13

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

Question 14

Equation and Normal Range for Change in adjusted PHS

Answer 14

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

Question 15

Equation and Normal Range for 1yr Reserve development to PHS

Answer 15

Equation:
(One year reserve development)/prior PHS
Normal Range: under 20%

Reserves net of SandS and gross of discounts***

Question 16

Equation and Normal Range for Gross Agents Balances: PHS

Answer 16

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

Question 17

Equation and Normal Range for Estimated Current Reserve Deficiency to PHS

Answer 17

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

Question 18

Denominator of Investment Yield

Answer 18

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

Question 19

Analyst Team System

Answer 19

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

Question 20

2 yr loss
2 yr expense
2 yr investment income

Answer 20

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

Question 21

Cash and invested assets for ratio 6

Answer 21

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