IRIS Ratios Flashcards
What is the Formula for IRIS Ratio 1
Policy Holder Surplus
Gross Written Premium is
Direct Written Premium Plus Assumed Reinsurance (Affiliates and Non Affiliates
What is the Usual Range for range for IRIS-1
Usual range is upto 900%. That is x <= 900%
Why is a high IRIS-1 Ratio bad
The higher the ratio, the more risk insurer bears in relation to the PHS.
What could cause a large disparity b/w IRIS-1 and IRIS-2
The insurer might be relying too much on reinsurance. Which isnt inherently a bad thing, if the financial strength of the insurers and their payment timings are strong and prompt.
Should IRIS-1 Ratio differ based on Casualty vs Property lines
Casualty lines, such as WC, are long tail lines where the outcomes and ultimate losses are less certain. Insurance companies mostly in Casualty lines should maintain a lower IRIS-1 ratio
What is the Formula for IRIS ratio 2
Policy Holder Surplus
What is the usual range for IRIS-2
The usual range is less than equal to 300%. That is X <= 300%
List 5 things to consider if IRIS-2 is high
- The financial strength of reinsurers
- Determine the level of adequacy of insurers’ protection against large losses. evaluate retention.
- Review the split between casualty and property lines. Casualty lines should have lower IRIS-2 ratios.
- Evaluate whether the insurers business is overall, and over the years profitable or not.
- If the insurer is within a holding company system, consider evaluating the ratio on a consolidated basis.
What is the formula for IRIS-3
NWP Previous Year
Change in NWP = (Current Year NWP - Previous Year NWP)
What is the usual range for IRIS-3 Ratio
The usual range for IRIS-3 is -33% to +33%. That is
-33% <= X <= +33%
What could a large increase in IRIS-3 indicate about the insurer
- Entry into new LOBs and New regions
2. Insurer maybe attempting to increase cashflow to cover current loss payments.
What could a large decrease in IRIS-3 indicate about the insurer
- Discontinuance of certain lines of business
- scaled back writings due to large losses
- loss of market share due to competition
- Increased use of reinsurance
Which metrics should be evaluated if there is sufficient instability present in IRIS-3
- Determine if the insurers assets are properly valued.
- Review IRIS-9, adjusted liabilities to liquid assets. Review schedules A through E.
- Review the insurer’s loss reserves. Review IRIS 11 to 13, and also Schedule P.
What is the formula for IRIS-4
Policy Holder Surplus
What is the usual range for IRIS-4
Less than 15%
What does an unusually high IRIS-4 ratio indicate
- may indicate that the management believes PHS to be inadequate.
Which ratios should be recalculated if IRIS-4 ratio is high ( > 15%)
- IRIS 1, 2, 7, 10, 13
What is IRIS-5 Ratio Called
Two Year Overall Operating Ratio
What is the formula for IRIS-5
Two year Loss Ratio
+
Two year Expense Ratio
- Two Year Investment Income Ratio
What is the Formula for Two Year Loss Ratio (IRIS5)
(2yr Earned Premium)
What is the Formula for Two Year Expense Ratio (IRIS5)
Two year net Premiums Written
What is the formula for Two year Net investment income earned (IRIS5)
2-Year premiums earned
Why do we subtract the Investment Income Ratio from the Calculation of IRIS-5 Ratio
The Subtraction of Investment Income allows insurers a credit for their investment income to offset their underwriting losses
What is the normal Range for IRIS-5
The normal range for IRIS-5 is less than 100%
that is x < 100%
What are the reasons for a high expense ratio in IRIS-5
High commissions & brokerage fees
Excessive salaries
Other operating expenses
What are the reasons for a high loss ratio in IRIS-5
- Large amount of losses incurred on poorly developed lines
- Strengthening reserves on certain lines of business
What other ratio should we consider when looking at IRIS-5
Take a look at IRIS-11, and IRIS-13.
Because Prior year reserve development of current year reserve deficiency may under/overstate the true operating position of an insurer
What is the name and Formula for IRIS-6
Investment Yield
Average Cash and Invested Assets, (Current & prior)
What does the IRIS-6 Ratio Measure
Provides the percentage of annual income on an investment portfolio.
What maybe the cause of low IRIS-6 Ratios. low investment yields?
- Speculative investments
- Large investments in affiliated entities under the control of the company
- Large investments in home office facilities
- Considerable investments in Tax-Exempt bonds
- Significant interest payments on borrowed money
- Extraordinary high investment expenses
What is the Usual range for IRIS-6
it is greater than 2%
and
less than 5.5%
What maybe the cause of high IRIS-6 Ratios, high investment yields
- Investments in high risk instruments
2. Extraordinary dividend payments from subsidiaries to parents
What is the name and formula for IRIS-7 ratio
Gross change in policy holders surplus
Gross change in PHS ------------------------------------------------- Policy Holders Surplus Prior Year
What is the usual range for IRIS-7 Ratio
The usual range for IRIS-7 is from -10% to 50%
What can cause a decrease in IRIS-7 and what should the analyst investigate
- Decrease in Net Income
- Unrealized Capital Gains or Losses
- Dividends to Stockholders
- Changes in non admitted assets
- Change in surplus aid from Reinsurance
- Accounting changes or correction of errors
- Change in Net deferred assets
- Change in ownership or program direction
What can cause a sudden increase in IRIS-7, Change in Surplus
Large increase in surplus can be a sign of instability and could indicate shifting of capital from other companies within a group, significant growth , or mergers and acquisitions
What is the name and formula for IRIS-8
Change in Adjusted Policyholders Surplus
Policy Holders Surplus
What is the Formula for Adjusted Policy Holders Surplus in IRIS-8 Formula
PHS Current Year minus Change in Surplus Notes minus Capital Paid-in or transferred minus Surplus Paid-in or Transferred minus PHS Prior year
What does IRIS-8 attempt to measure
The ration attempts to measure the insurers financial health during the year based on operational results.
What is a normal range for IRIS-8
The normal range for IRIS-10 is less than 25% and greater than -10%
Which factors can cause a significant increase or decrease in PHS
Same as IRIS-7
