IRIS

Question 1

Overall Ratios

Answer 1

• IRIS 1: GWP / Surplus <= 900%
• IRIS 2: NWP / Surplus <= 300%
• IRIS 3: Change(NWP) / Prior Year NWP [-33%, 33%]
• IRIS 4: Surplus Aid / Surplus < 15%

Question 2

IRIS 4

Answer 2

Surplus Aid / Surplus < 15%
Ceding Commissions Ratio * Unearned Premium - Non-affiliates
Other US Unaffiliated Insurers, Mandatory & Voluntary Pools, Certified Other Non-US Insurers

High: Indicates surplus is inadequate, may conceal areas of concern, may indicate excessive reinsurance & collectability risk

Recalc 1, 2, 7, 10, 13

Question 3

Profitability Ratios

Answer 3

• IRIS 5: 2-yr Operating Ratio < 100%
• IRIS 6: Investment Yield (2%, 5.5%)
• IRIS 7: Change(Surplus) / Prior Year Surplus (-10%, 50%)
• IRIS 8: Adjusted Surplus / Prior Year Surplus (-10%, 25%)

Question 4

IRIS 5

Answer 4

2-yr Operating Ratio < 100%
= 2-yr Loss Ratio + 2-yr Expense Ratio - 2-yr IIR
IIR = Investment Income Ratio
< 100%
Recalc if IRIS 11 outside usual range
Losses, Loss Adjustment Expenses, & Policyholder Dividends / Premiums Earned
Other Underwriting Expenses Less Other Income / Net Premiums Written
Investment Income Earned / Premiums Earned

Question 5

IRIS 6

Answer 5

Investment Yield (2%, 5.5%)
= 2 * (NII earned) / Avg Cash & Invested Assets, Current & Prior Year
NII = Net Investment Income
+ Total Cash & Invested Assets, + Investment Inc. Due & Accrd, - Borrowed Money

Low: Speculative instruments providing capital gain but no interim income
High: High-risk instruments (may leverage surplus unduly)

Question 6

IRIS 7

Answer 6

Change(Surplus) / Prior Year Surplus (-10%, 50%)

Low: Decrease in net income
High: Insurers often have increase in surplus before insolvency

Question 7

IRIS 8

Answer 7

Adjusted Surplus / Prior Year Surplus (-10%, 25%)
Adjusted Surplus = Policyholders’ Surplus (Current Yr) - Change in Surplus Notes - Capital Paid-in or Transferred - Surplus Paid-in or Transferred - Policyholders’ Surplus (Prior Yr)

Question 8

Liquidity Ratios

Answer 8

IRIS 9: Adjusted Liabilities / Liquid Assets < 100%
IRIS 10: Gross Agents’ Balances in Collection / Surplus < 40%

Question 9

IRIS 9

Answer 9

Adjusted Liabilities / Liquid Assets < 100%
Adjusted Liabilities = Total Liabilities - Liabilites Equal to Deferred Agents’ Balances
Liquid Assets = Bonds + Stocks + Cash, Cash Equivalents & Short-Term Investments + Receivable for Securities + Investment Income Due & Accrued - Investments in Parent, Subsidiaries, & Affiliates

Insolvent insurers often have high ratios prior to insolvency
Consider trend over prior years

Question 10

IRIS 10

Answer 10

Gross Agents’ Balances in Collection / Surplus < 40%
High: Agents may be slow in paying; balances > 90 days overdue may need to be removed from admitted assets

Question 11

Reserve Ratios

Answer 11

IRIS 11: 1-yr loss reserve development < 20%
IRIS 12: 2-yr loss reserve development < 20%
IRIS 13: Estimated reserve deficiency < 25%

Question 12

IRIS 11

Answer 12

1-yr loss reserve development / Surplus (Prior Yr) < 20%

Question 13

IRIS 12

Answer 13

2-yr loss reserve development / Surplus (2nd Prior Yr) < 20%

Question 14

IRIS 13

Answer 14

Estimated reserve deficiency (redundancy) / Surplus < 25%
Premiums Earned (Current) * Avg Ratio of Reserves to Premiums (Preliminary Ratio)
Preliminary Ratio = Average[(Loss & LAE Reserves (Prior) + 1-yr loss reserve development)/Premiums Earned (Prior), (Loss & LAE Reserves (2nd Prior) + 2-yr loss reserve development)/Premiums Earned (2nd Prior)

Affected by changes in mix, premium volume

Question 15

Branded Risk Classifications

Answer 15

CLL-MOP-RRS
CR - Credit (10)
LG - Legal
LQ - Liquidity (6, 9)
MK - Market (6)
OP - Operational (5, 7, 8)
PR/UW - Pricing/Underwriting (1, 2, 3, 4)
RP - Reputation
RV - Reserving (11, 12, 13)
ST - Strategic (1, 2, 3, 4, 6, 7, 8)