C - MSA

Question 1

MSA

Return on Revenue

Answer 1

[sum of (uw income, investment income, income from subsidiaries) - Capital Gains]/ GWP

Measure income generated relative to revenue generating capacity

Minimum = 6.2%

Question 2

MSA

Return on Assets after Tax

Answer 2

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

Measure efficiency to generate income from asset base

Minimum 2.6%

Question 3

MSA

Insurance Return on Net Premium Earned

Answer 3

(UW Income + Investment Income) / Net Premium Earned

Measure the earning capacity of insurer

Minimum of 4%

Question 4

MSA

Liabilitites as a percentage of Liquid Assets

Answer 4

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 5

MSA

One-Year Development to Equity

Answer 5

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 6

MSA

Overall Net Leverage

Answer 6

(Net Written Premium + Net Liabilities) / Equity

excessive premium writing erodes financial stability

deterioration in liabilities erodes financial stability

maximum of 500%

Question 7

MSA

Change in Equity

Answer 7

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 8

MSA

Overall Diversification Score

Answer 8

Measure how closely the insurer tracks the overall Canadian Market (in terms of geographic and 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 9

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 9

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