IRIS Ratios

Question 1

Calculate and Interpret IRIS 1 and state usual range

Answer 1

(GWP)/(Surplus)

<= 900%

HIGH: Too much premium/business/risk relative to surplus (not enough buffer)

NAIC

Question 2

Calculate and Interpret IRIS 2 and state usual range

Answer 2

(NWP)/(Surplus)

<= 300%

HIGH: Too much premium/business/risk relative to surplus (not enough buffer). Notice range is more stringent then 1

NAIC

Question 3

Calculate and Interpret IRIS 3 and state usual range

Answer 3

(NWP - Prior NWP)/(NWP)

(-33% , 33%)

HIGH: Perhaps indicates too loose of UW standards
LOW: Perhaps indicates too strict of UW standards
Volatility not good for insurer, lack of stability in operations

NAIC

Question 4

Calculate and Interpret IRIS 4 and state usual range

Answer 4

[[(Ceding Comissions)/(Ceded Written Premium)]x(non affiliate UEP)]/Surplus

<= 15%

HIGH: too much aid, perhaps inflated surplus. Impacts other ratios (need to recalculate 1, 2, 7, 10, 13). May indicate that PHS is inadequate

NAIC

Question 5

Calculate and Interpret IRIS 5 and state usual range

Answer 5

All figures sum of last 2 years
(Loss & LAE & Dividends)/EP + (Other UW Exp - Other Income)/NWP - (Investment Gain)/EP

<= 100%

HIGH: Company is unprofitable, not making money
LOW: Profitable

NAIC

Question 6

Calculate and Interpret IRIS 6 and state usual range

Answer 6

2xNet Investment Gain / (2 year invested cash and short term assets + 2 year due and accrued interest - 2 year borrowed money - Net Investment Gain)

(2.0%, 5.5%)

HIGH: too risky
LOW: Investments are providing capital gains but no interim income, perhaps not invested wisely

NAIC

Question 7

Calculate and Interpret IRIS 7 and state usual range

Answer 7

(Surplus - Previous Surplus)/(Previous Surplus)

[-10%, 50%)

HIGH: Large increase in Surplus indicator of potential insolvency. Volatility is not good
LOW: Large decrease may be due to negative net income

NAIC

Question 8

Calculate and Interpret IRIS 8 and state usual range

Answer 8

(Surplus - Change in Surplus Notes - Capital & Surplus Paid In - Previous Surplus)/(Previous Surplus)

[-10%, 25%)

LOW: Deterioration in financial condition due to operations
HIGH: Improvement in financial condition due to operations

NAIC

Question 9

Calculate and Interpret IRIS 9 and state usual range

Answer 9

(Total Liabilities - Agents Balances Deferred)/(Cash & Cash Equivalents, Short term investments, stocks, bonds, receivable for securities, investment income due & accrued - investments in affiliate companies)

<= 100%

HIGH: Not enough assets to meet short term obligations

NAIC

Question 10

Calculate and Interpret IRIS 10 and state usual range

Answer 10

(Agents Balances in Course of Collection)/Surplus

<= 40%

HIGH: Indicates high percentage of slow paying agents. Credit Risk

NAIC

Question 11

Calculate and Interpret IRIS 11 and state usual range

Answer 11

(1 year reserve development)/(Prior Surplus)

<20%

HIGH: Large adverse development, reserve deficiency

NAIC

Question 12

Calculate and Interpret IRIS 12 and state usual range

Answer 12

(2 year reserve development)/(2nd Prior Surplus)

<20%

HIGH: Large adverse development, reserve deficiency

NAIC

Question 13

Calculate and Interpret IRIS 13 and state usual range

Answer 13

[AVG((Prior Reserve + 1 yr devel)/Prior NWP,(2nd Prior Reserve + 2 yr devel)/2nd Prior NWP)xNWP-Reserves]/Surplus

<25%

HIGH: Reserve deficiency
LOW: Reserve redundancy

NAIC

Question 14

What is IRIS?

Answer 14

Insurance Regulatory Information System. Similar to report card for insurance companies

NAIC

Question 15

Identify levels the ‘Analyst Team’ uses to categorize companies based on their financial results (outdated)

Answer 15

Level A: Requires Immediate attention
Level B: Shows Adverse Results, but doesn’t require immediate attention
Level C/Reviewed: No level assigned, and no regulatory attention required

Odomirok 20 (outdated)