C - MSA Flashcards

1
Q

MSA

MCT BAAT

A

Risk-Based Capital Tests (RBC)
MCT = Capital Available / Capital Required
BAAT = Total Net Assets Available / Margin Required

Minimum = 150%

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2
Q

MSA

ROE

A

ROE = Net Income / Equity

The higher the ratio, the greater the return per unit of invested capital

Minimum = 5.4%

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3
Q

MSA

Return on Revenue

A

sum of (uw income, investment income, income from subsidiaries) / GWP

Measure income generated relative to revenue generating capacity

Minimum = 6.2%

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4
Q

MSA

Return on Assets after Tax

A

Net Income after Tax / Avg (Assets at BoY and EoY)

Measure efficiency to generate income from asset base

Minimum 2.6%

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5
Q

MSA

Insurance Return on Net Premium Earned

A

(UW Income + Investment Income) / Net Premium Earned

Measure the earning capacity of insurer

Minimum of 4%

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6
Q

MSA

Liabilitites as a percentage of Liquid Assets

A

Liabilities / Liquid Assets from balance sheet

Measure the insurer liquidity
The greater the ratio, the greater the liabilities relative to the assets available to back them

Maximum = 105%

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7
Q

MSA

Net Loss Reserves to Equity

A

Net Loss Reserves / Equity

High ratio expose insurer to financial distress if provisions for unpaid claims proves inadequate

Maximum = 200%

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8
Q

MSA

One-Year Development to Equity

A

one-year development margin (deficiency) on unpaid claims / equity

Adverse development means that previous estimated liabilities were underestimated, hence equity was overstated

Investment income is incorporated in one-year development measure. Development measure is affected by loss reserve discounting.

Minimum = -10%

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9
Q

MSA

Overall Net Leverage

A

(Net Written Premium + Net Liabilities) / Equity

excessive premium writing erodes financial stability

deterioration in liabilities erodes financial stability

maximum of 500%

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10
Q

MSA

Adjusted Investment Yield (incl. realized capital gains)

A

2 * ( Net Investment Income + OCI ) / (Invested Assets BOY + EOY - net investment income - OCI)

Measures income and capital gains relative to deployed assets

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11
Q

MSA

Change in Net Premium Written

A

YoY % change in NPW

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12
Q

MSA

Change in Gross Premium Written

A

YoY % change in GPW

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13
Q

MSA

Change in Equity

A

YoY % change in Equity.

Decline in equity decrease the cushion to support premium writing and absorb loss.

Dramatic increase in Equity may be indicative of instability

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14
Q

MSA

AOCI to Equity

A

AOCI is a capital element relating to unrealized capital gains or losses on Available for Sales securities.

Measures AOCI’S proportion to overall capital

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15
Q

MSA

Reinsurance Recoverables to Equity

A

Recoverables from reinsurers on (unpaid claims, unearned premiums)

Very high ratio : insurer is very dependant on recoverability of these funds

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16
Q

MSA

Net UW Leverage Ratio

A

Net Premium Written / Equity

may indicate capital strain and vulnerability

Maximum = 300%

17
Q

MSA

Two-Year Combined Ratio

A

Combined ratio over 24 months
over 100% : UW loss
below 100% UW profit

18
Q

MSA

Overall Diversification Score

A

measure how closely the insurer tracks the overall Canadian Market

The higher the score, the closer the insurer tracks that of overall industry

a well diversified cie that closely tracks the industry will have a higher score (above 65)

–high score simply indicates that the insurer is highly diversified and will generally track the market’s overall performance.

19
Q

MSA

LEARN YOUR TARGETS
----------------------------------
One Yr Dev to EQ
ROA
ROE
ROR

Ins Return on NPE

2 yr combined ratio
liability to liquid asset

net loss reserves to EQ
net UW leverage ratio
overall leverage ratio

MCT

A

One Yr Dev to EQ ———— min —- (10.0%)
ROA ——————————- min —- 2.6%
ROE ——————————- min —- 5.4%
ROR ——————————- min —- 6.2%

Ins Return on NPE ———– min —- 4.0%

2 yr combined ratio ——— max —- 100%
liability to liquid asset —— max —- 105%

net loss reserves to EQ — max —- 200%
net UW leverage ratio —– max —- 300%
overall leverage ratio —— max —- 500%

MCT —————————— min —- 150%l