IRIS Ratios Flashcards
IRIS 1
GWP / Surplus <= 900%
IRIS 2
NWP / Surplus <= 300%
IRIS 3
-33% <= change(NWP) / prior yr NWP <= 33%
IRIS 4
surplus aid / surplus < 15%
surplus aid = CUEPRnon-affil * CCtotal / CWPtotal
ceded unearned prem non-affiliates, ceded commissions, ceded written premium
IRIS 5
2-yr Overall Operating Ratio
LR + ER - IIR < 100%
LR = (Lcurr + Lprior + Divcurr + Divprior) / (NEPcurr + NEPprior)
ER = (Expcurr + Expprior - TOIcurr - TOIprior) / (NWPcurr + NWPprior)
IIR = (NIIcurr + NIIprior) / (NEPcurr + NEPprior)
IRIS 6
Investment Yield Ratio
2% < 2*(Earned NII) / (curr&prior[cash, invested assets, inv inc due & accrued] - curr&prior[borrowed money] - NII) < 5.5%
IRIS 7
-10% < change(surplus) / prior surplus < 50%
IRIS 8
-10% < (curr surplus - change(surplus notes) - capital pd-in - surp pd-in - prior surp) / prior surp < 25%
IRIS 9
adj liabilities / liquid assets < 100%
(total liabilities - liab equal to agents’ balances) / (liquid assets like bonds, stocks, cash, short-term inv, receivable for securities, inv inc due & accrued - inv to parents, subsids, affils) <100%
IRIS 10
gross agents’ balances in collection / surplus < 40%
IRIS 11
1-yr loss reserve dvlpmnt / prior surplus < 20%
IRIS 12
2-yr loss reserve development / 2nd prior yr surplus < 20%
IRIS 13
estimated reserve def (redun) / surplus < 25%
est reserve def(redun) = EP * Preliminary ratio - CY L&LAE reserve
Preliminary ratio = average of 2 prior years of dev L&LAE/Prem
Calc each prior yr & 2nd prior yr (L&LAE reserve + 1-yr dvlpmnt)/prem earned
then average those two ratios!
Interpret a high value for IRIS 1
based on GWP - more risk in relation to surplus (surplus is a cushion for absorbing losses)
Interpret a high value for IRIS 2
based on NWP - more risk in relation to surplus cushion
Interpret a high or low value for IRIS 3
based on NWP - potential lack of stability in operations
High ratio could mean less strict UW requirements or writing a new line
Interpret a high value for IRIS 4
based on surplus aid - policyholder’s surplus may be inadequate
too much surplus aid:
- may indicate policyholder’s surplus is inadequate
- may improve other IRIS ratios & conceal areas of concern
- may indicate excessive reinsurance & collectability risk
Interpret a low value for IRIS 5
better operating profit
Interpret a low or high value for IRIS 6
Low: multiple potential causes such as investments providing capital gains but no interim income
High: investments are high risk
Interpret a low or high value for IRIS 7
Low: dangerous surplus decrease; may be caused by decrease in net income
High: possible insolvency; surplus often goes up before insolvency
Interpret a low or high value for IRIS 8
Low: deterioration
High: improvement in financial condition due to operations
Purpose of IRIS 5
to identify companies that are operating unprofitably
Interpret a high value for IRIS 9
trouble meeting short term obligations
Interpret a high value for IRIS 10
agents may be slow in paying; balances >90 days overdue may need to be removed from admitted assets
Interpret a positive (negative) ratio for IRIS 11
reserve deficiency (redundancy) - isolate the LOB causing this using SchP.2
Interpret a positive (negative) ratio for IRIS 12
reserve deficiency (redundancy) - isolate the LOB causing this using SchP.2
Interpret a positive (negative) ratio for IRIS 13
reserve deficiency (redundancy) - affected by changes in mix, premium volume
good test for correction of reserve deficiencies
Ways IRIS 13 can be distorted
Changes in:
volume
mix
reserve strengthening/weakening
reinsurance commutation
Which ratios need to be recalculated if IRIS 4 is unusual?
If IRIS 4 >= 15%, recalc 1, 2, 7, 10, 13
Which ratio needs to be recalculated if IRIS 11 is unusual?
IRIS 5, first eliminating prior year development
