MSA Flashcards

1
Q

MSA: MCT

A
  • Capital available / capital required
  • Primary regulatory solvency test
  • Minimum 150%
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2
Q

MSA: GAAP ROE

A

= NI / Equity

  • Return to shareholders per unit of invested capital
  • Minimum 5.4%
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3
Q

MSA: Return on Revenue

A

ROR = [UW Income + II (excl gains) + Income from Subsidiaries] / Gross WP

  • Income relative to revenue generating capacity
  • Minimum 6.2%
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4
Q

MSA: Return on Assets After Tax

A

= NI after Tax / Avg[begYr and EndYr Assets]

  • Measure of efficiency in generating income from assets
  • Minimum 2.6%
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5
Q

MSA: Insurance Return on Net Premium Earned

A

= [UW Income + II (excl. gains)] / Net Premium Earned

  • Measure core earning capacity
  • Minimum 4%
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6
Q

MSA: Liabilities as % of Liquid Assets

A

= 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%
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7
Q

MSA: Net Loss Reserves to Equity

A

= 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%
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8
Q

MSA: 1-year Development to Equity

A

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%
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9
Q

MSA: Overall Net Leverage

A

= (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%
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10
Q

MSA: Adjusted Investment Yield

A

2*(NII + OCI)/(begYr + endYr Invested Assets - NII - OCI)

  • Measures income and capital gains relative to deployed assets
  • Acceptable minimum 6%
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11
Q

MSA: AOCI to Equity

A

= AOCI / Equity

  • Unrealized capital gains/losses on A-F-S securities
  • Measures AOCI’s proportion to overall capital
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12
Q

MSA: Re Recoverables to Equity

A

= (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
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13
Q

MSA: Net UW Leverage

A

= 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%
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14
Q

MSA: 2-year combined ratio

A

= LR + Expense Ratio + (LAE / EP)

  • Provides a smoother measure of the company’s UW performance than single year measure
  • Under 100 % is profit
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15
Q

MSA: Overall diversification score (1-100)

A
  • 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
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16
Q

What is Statutory Surplus?

What is Adjusted Equity?

A
  • Statutory Surplus = Assets – Liabs – Required Reserves

* Adjusted Equity = Total Equity – Capital needed for CAT – Capital needed for Re ceded to unRe

17
Q

MSA: Combined ratio

A

( 1 - UW Income/NPE ) * 100