C - MSA

Question 1

MSA

MCT BAAT

Answer 1

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

Minimum = 150%

Question 2

MSA

ROE

Answer 2

ROE = Net Income / Equity

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

Minimum = 5.4%

Question 3

MSA

Return on Revenue

Answer 3

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

Measure income generated relative to revenue generating capacity

Minimum = 6.2%

Question 4

MSA

Return on Assets after Tax

Answer 4

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

Measure efficiency to generate income from asset base

Minimum 2.6%

Question 5

MSA

Insurance Return on Net Premium Earned

Answer 5

(UW Income + Investment Income) / Net Premium Earned

Measure the earning capacity of insurer

Minimum of 4%

Question 6

MSA

Liabilitites as a percentage of Liquid Assets

Answer 6

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%

Question 7

MSA

Net Loss Reserves to Equity

Answer 7

Net Loss Reserves / Equity

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

Maximum = 200%

Question 8

MSA

One-Year Development to Equity

Answer 8

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%

Question 9

MSA

Overall Net Leverage

Answer 9

(Net Written Premium + Net Liabilities) / Equity

excessive premium writing erodes financial stability

deterioration in liabilities erodes financial stability

maximum of 500%

Question 10

MSA

Adjusted Investment Yield (incl. realized capital gains)

Answer 10

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

Measures income and capital gains relative to deployed assets

Question 11

MSA

Change in Net Premium Written

Answer 11

YoY % change in NPW

Question 12

MSA

Change in Gross Premium Written

Answer 12

YoY % change in GPW

Question 13

MSA

Change in Equity

Answer 13

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

Question 14

MSA

AOCI to Equity

Answer 14

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

Measures AOCI’S proportion to overall capital

Question 15

MSA

Reinsurance Recoverables to Equity

Answer 15

Recoverables from reinsurers on (unpaid claims, unearned premiums)

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

Question 16

MSA

Net UW Leverage Ratio

Answer 16

Net Premium Written / Equity

may indicate capital strain and vulnerability

Maximum = 300%

Question 17

MSA

Two-Year Combined Ratio

Answer 17

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

Question 18

MSA

Overall Diversification Score

Answer 18

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.

Question 19

MSA

LEARN YOUR TARGETS
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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

Answer 19

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