MSA Ratios Flashcards
formula for ROE and acceptable range
ROE = (NI.preTax - TotTax) / Eq
ROE > 5.4%
sustainability of earnings
formula for ROR and acceptable range
ROR = (U/W.Inc - CapGains + InvInc + IncFrmSubs) / GWP
ROR > 6.2%
income relative to revenue-generating capacity
formula for ROA and acceptable range
ROA = (NI.preTax - TotTax) / (2-yr avg of assets)
ROA > 2.6%
efficiency measure for income-generation
examples of company characteristics not captured in MSA ratios
- subjective analysis of market position
- quality of management
- quality of reinsurance
- prospects for growth & innovation
what does diversification score measure
- measures how closely the insurer tracks the overall Canadian market in terms of geographic & LOB spread
- if diversification score is > 65 -> company is highly diversified
examples of an insurer with a low/high diversification score
- low: niche insurers
- high: national, mutli-line insurers
formula for Ins RO.NEP and acceptable range
Ins RO.NEP = (U/W.Inc - CapGains + InvInc(from U/W.Inc) / NEP
Ins RO.NEP > 4.0%
core earning capacity
formula for Liab / LiqAss and acceptable range
Liabilities / Liquid Assets
Liab / LiaAss < 105%
liquidity measure
formula for Net.LsRsvs / Eq and acceptable range
Net.Loss.Reserves / Eq
Net.LsRsvs / Eq < 200%
high ratio could mean financial distress
formula for 1yrDevlpt / Eq and acceptable range
1-yr development / Eq
1yrDevlpt / Eq > -10%
adverse development could mean under-reserving
formula for Net.Levg and acceptable range
Net.Levg = (Net.Liabilities + NWP) / Eq
Net.Levg < 500%
stability measure (high ratio means excessive writing)
formula for AdjInvYld and acceptable range
AdjInvYld = 2 x (Net.InvInc + OCI) / (Invested Assets [start of yr] + Invested Assets [end of yr] - Net.InvInc - OCI)
measures income and capital gains relative to assets
formula for Net.U/W.Levg and acceptable range
Net.U/W.Levg = NWP / Eq
Net.U/W.Levg < 300%
higher ratio indicates capital strain
formula for Overall Diversification and acceptable range
Overall Diversification = LOB diversity score x geographic diversity score
> 65%
score for each factor is 1-10, a higher score is better because it indicates greater diversity which is a hedge against risk
formula for Net Expense Ratio
(Amortization of Insurance Acquisition cash flows
- Amortization of Reinsurance Acuisition cash flows
+ General & Operating Expenses)
/
(Total Insurance Revenue
+ Allocation of Reinsurance premiums)
formula for Net Claims Ratio (partially discounted)
((Incurred Claims and Other Insurance Service Expenses
+ Adjustments to LIC
+ Losses and Removal of losses on Onerous Contracts)
- (Incurred Claims recovered and other Reinsurance Service Expenses
+ Recovery of losses and reversal on Recovery of losses
+ Adjustments to assets for incurred claims
+ Effect of changes in non-performance risk of reinsurers))
/
(Total Insurance Revenue
+ Allocation of Reinsurance premiums)
formula for Net Combined Ratio (partially discounted)
(Insurance Service Expense
+ General & Operating Expenses
- Amount Recoverable from Reinsurers
- Effect of changes in non-performance risk of reinsurers)
/
(Total Insurance Revenue
+ Allocation of Reinsurance premiums)
formula for Net Combined Ratio (fully discounted)
((Insurance Service Expense
+ General & Operating Expenses
- Amount Recoverable from Reinsurers
- Effect of changes in non-performance risk of reinsurers)
- (Net Finance Income from insurance contracts
+ Net Finance Income from reinsurance contracts held))
/
(Total Insurance Revenue
+ Allocation of Reinsurance premiums)
formula for Gross Expense Ratio
(Amortization of Insurance Acquisition cash flows
+ General & Operating Expenses)
/
Total Insurance Revenue
formula for Gross Claims ratio (partially discounted)
(Incurred Claims & Other Insurance Service Expenses
+ Adjustments to LIC
+ Losses and Reversal of losses on Onerous Contracts)
/
Total Insurance Revenue
formula for Combined Ratio (partially discounted)
(Insurance Service Expense
+ General & Operating Expenses)
/
Total Insurance Revenue
formula for Combined Ratio (fully discounted)
((Insurance Service Expense
+ General & Operating Expenses)
- (Net Finance Income from insurance contracts))
/
Total Insurance Revenue
formula for Gross Insurance Service Ratio (GISR)
Insurance Service Revenue / Total Insurance Revenue
formula for Reinsurance Impact Ratio (RIR)
Net Expenses from reinsurance contracts held / Total Insurance Revenue
formula for Net Insurance Service Ratio (NISR)
(Insurance Service Expense
+ General & Operating Expenses
- Amount Recoverable from Reinsurers
- Effect of changes in non-performance risk of reinsurers)
/
(Total Insurance Revenue
+ Allocation of Reinsurance premiums)
formula for Reinsurance Service Ratio (RSR)
Amounts Recoverable from reinsurers from Incurred Claims / Allocation for Reinsurance premiums
formula for Investment Yield
Investment Return / Average Invested Assets
formula for Return on Equity
Net Income / Average of Total Equity
