C - MSA Flashcards
MSA
MCT BAAT
Risk-Based Capital Tests (RBC)
MCT = Capital Available / Capital Required
BAAT = Total Net Assets Available / Margin Required
Minimum = 150%
MSA
ROE
ROE = Net Income / Equity
The higher the ratio, the greater the return per unit of invested capital
Minimum = 5.4%
MSA
Return on Revenue
sum of (uw income, investment income, income from subsidiaries) / GWP
Measure income generated relative to revenue generating capacity
Minimum = 6.2%
MSA
Return on Assets after Tax
Net Income after Tax / Avg (Assets at BoY and EoY)
Measure efficiency to generate income from asset base
Minimum 2.6%
MSA
Insurance Return on Net Premium Earned
(UW Income + Investment Income) / Net Premium Earned
Measure the earning capacity of insurer
Minimum of 4%
MSA
Liabilitites as a percentage of Liquid Assets
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%
MSA
Net Loss Reserves to Equity
Net Loss Reserves / Equity
High ratio expose insurer to financial distress if provisions for unpaid claims proves inadequate
Maximum = 200%
MSA
One-Year Development to Equity
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%
MSA
Overall Net Leverage
(Net Written Premium + Net Liabilities) / Equity
excessive premium writing erodes financial stability
deterioration in liabilities erodes financial stability
maximum of 500%
MSA
Adjusted Investment Yield (incl. realized capital gains)
2 * ( Net Investment Income + OCI ) / (Invested Assets BOY + EOY - net investment income - OCI)
Measures income and capital gains relative to deployed assets
MSA
Change in Net Premium Written
YoY % change in NPW
MSA
Change in Gross Premium Written
YoY % change in GPW
MSA
Change in Equity
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
MSA
AOCI to Equity
AOCI is a capital element relating to unrealized capital gains or losses on Available for Sales securities.
Measures AOCI’S proportion to overall capital
MSA
Reinsurance Recoverables to Equity
Recoverables from reinsurers on (unpaid claims, unearned premiums)
Very high ratio : insurer is very dependant on recoverability of these funds
MSA
Net UW Leverage Ratio
Net Premium Written / Equity
may indicate capital strain and vulnerability
Maximum = 300%
MSA
Two-Year Combined Ratio
Combined ratio over 24 months
over 100% : UW loss
below 100% UW profit
MSA
Overall Diversification Score
Measure how closely the insurer tracks the overall Canadian Market (in terms of geographic & LOB spread)
The higher the score, the closer the insurer tracks that of overall industry
A highly diversified company that closely tracks the industry will have a score above 65.
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
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
