MSA Flashcards
MSA: MCT
- Capital available / capital required
- Primary regulatory solvency test
- Minimum 150%
MSA: GAAP ROE
= NI / Equity
- Return to shareholders per unit of invested capital
- Minimum 5.4%
MSA: Return on Revenue
ROR = [UW Income + II (excl gains) + Income from Subsidiaries] / Gross WP
- Income relative to revenue generating capacity
- Minimum 6.2%
MSA: Return on Assets After Tax
= NI after Tax / Avg[begYr and EndYr Assets]
- Measure of efficiency in generating income from assets
- Minimum 2.6%
MSA: Insurance Return on Net Premium Earned
= [UW Income + II (excl. gains)] / Net Premium Earned
- Measure core earning capacity
- Minimum 4%
MSA: Liabilities as % of Liquid Assets
= Liabilities / Liquid Assets
- Measures the insurer’s liquidity
- Higher ratio means less assets to back liabs
- BS values are used to measure liquid assets
- Maximum 105%
MSA: Net Loss Reserves to Equity
= Net Loss Reserve / Equity
- High ratio could mean the insurer is exposed to financial distress due to the uncertainty in assessing unpaid claim liabs
- If this ratio is too high then small % deviations in o/s reserves can have devastating effects on solvency
- Maximum 200%
MSA: 1-year Development to Equity
1-Year Dev Deficiency / Equity
- Measures an insurers 1-year dev margin or deficiency on unpaid claims to equity
- Adverse dev indicates underreserving, hence over-stated equity
- Includes II and discounted loss reserves
- Minimum -10%
MSA: Overall Net Leverage
= (Net Written Premium + Net Liabs) / Equity
- Excessive premium writings relative to capital or deterioration in liabs will erode a company’s financial stability
- Maximum 500%
MSA: Adjusted Investment Yield
2*(NII + OCI)/(begYr + endYr Invested Assets - NII - OCI)
- Measures income and capital gains relative to deployed assets
- Acceptable minimum 6%
MSA: AOCI to Equity
= AOCI / Equity
- Unrealized capital gains/losses on A-F-S securities
- Measures AOCI’s proportion to overall capital
MSA: Re Recoverables to Equity
= (RR from UEPR + RR from Unpaid Claims) / Equity
- Gross measure since not offset by payables
- Includes for S&S recoverables
- High ratio means the insurer depends on the recoverability of those funds and thus the financial health of the Re
MSA: Net UW Leverage
= Net Written Premium / Equity
- Measure the company’s UW exposure relative to its capital base
- Usefulness reduced by the fact that WP is an imperfect proxy for exposure
- Maximum 300%
MSA: 2-year combined ratio
= LR + Expense Ratio + (LAE / EP)
- Provides a smoother measure of the company’s UW performance than single year measure
- Under 100 % is profit
MSA: Overall diversification score (1-100)
- Measures how closely the insurer tracks the overall Canadian market both geo and LOB spread
- Product of geo and LOB diversification scores, each within a 1-10 range
- Higher score means the company tracks closely to overall industry
- Scores in excess of 65 means the insurer is well-diversified
- Niche or regional insurers will have lower scores
- Low and high scores can be profitable
- Excludes ICBC
- If part of a group, looks at the group’s score