MSA Ratios Flashcards
MCT
formula & range
Total Capital / Minimum Required Capital
Minimum 150%
ROE
formula & range
Net Income/Equity
Minimum 5.4%
Return to shareholder per unit of invested capital. Should be sustainable rather than up and down. High ROE can be from low equity, which could mean high leverage.
Return on Revenue (ROR)
formula & range
= (UW income + Inv Income exc gains + Income from Subsidiaries) / Gross WP
Minimum 6.2%
Measures the income generated by the company relative to its revenue capacity
Return on Assets after tax (ROA)
formula & range
= Net Income After Tax/ (Beginning Year Assets + Ending Year Assets)/2
Minimum = 2.6%
Measures the efficiency of the company in terms of the company’s ability to generate income from its assets.
Insurance Return on Net Premium Earned (IRNPE)
formula & range
(UW Income + Inv Income exc gains)/Net Premiums Earned
Minimum 4%
Measures core earning capacity
Liabilities as a Percentage of Liquid Assets (LLA)
formula & range
Liabilities/Liquid Assets
Maximum = 105%
Measures the insurers liquidity. The higher the ratio means you have less assets to back your liabilities. Balance sheet values are used to determine liquidity.
Net Loss Reserves to Equity
formula & range
NLRE = Net Loss Reserves/ Equity
Maximum = 200%
If this ratio is too high then small % deviations in o/s reserves can have devastating effects on solvency. A high ratio could mean the insurer is exposed to financial distress due to the uncertainty in assessing unpaid claim liabilities.
One-Year Development to Equity
formula & range
1 year development deficiency/equity
Minimum = -10%
Investment income is built in. Development is impacted by mandatory discounting. Measures an insurers one year development margin or deficiency on unpaid claims to equity.
Adverse development implies previous estimated liabilities were underestimated, hence previous equity was overstated.
Overall Net Leverage
formula & range
(NWP + NL) / Equity
Maximum = 500%
Excessive premium writing relative to capital or a deterioration in liabilities will erode a company’s financial stability.
Adjusted Investment Yield (include realized capital gains)
formula
=(2*(Net Investment Income + OCI))/(Beginning Year + End Year Invested Assets - Net Investment Income - OCI)
Measure income and capital gains relative to deployed assets
Change in NPW
description
Year over Year % Change in net premiums written
Change in Gross Premiums Written
description
Year over Year % change in GWP
Change in Equity
description
Year over year % change in equity. Declines in equity decrease the company’s cushion available to support premium writings and absorb losses. Dramatic increases in equity may be indicative of instability.
AOCI to Equity
formula
= Accumulated other Comprehensive Income/Equity
AOCI is a capital element relating to unrealized (mark to market) capital gains or losses on available for sale securities. Measures AOCI’s proportion to overall capital.
Reinsurance Recoverable to Equity
formula
=(RR from Unearned Premium + RR from Unpaid Claims)/Equity
Gross measure since not offset by payables. Also accounts for S&S recoverables. High ratio means the insurer depends on the recoverability of those funds and thus financial health of the reinsurer.
