MSA.RATIOS Flashcards

1
Q

MCT Ratio (Minimum Capital Test)

A

Formula: CapAv / minCapReq

Acceptable range: > 150%

Meaning: measure of capital adequacy

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2
Q

ROE (return on equity)

A

Formula: (NI.preTax - TotTax)/Equity

Acceptable range: > 5.4%

Meaning: sustainability of earnings

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3
Q

ROR (return on revenue)

A

Formula: (U/W Inc. - CapGains + InvInc + IncFrmSubs)/GWP

Acceptable range: > 6.2%

Meaning: income relative to revenue-generating capacity

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4
Q

ROA (return on assets, after tax)

A

Formula: (NI.pretax - TotTax)/(2-yr avg of assets)

Acceptable range: > 2.6%

Meaning: efficiency measure for income-generation

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5
Q

Insurance return on Net EP

A

Formula: (U/W Inc. - CapGains + InvInc(from U/W Inc.))/NEP

Acceptable range: > 4.0%

Meaning: core earning capacity

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6
Q

Liabilities/Liquid Assets

A

Formula: Liabilities/Liquid Assets

Acceptable range: < 105%

Meaning: liquidity measure

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7
Q

Net Loss Reserves/Equity

A

Formula: Net Loss Reserves/Equity

Acceptable range: < 200%

Meaning: high ratio means financial distress

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8
Q

1-yr development/Equity

A

Formula: 1-yr development/Equity

Acceptable range: > -10%

Meaning: adverse development could mean under-reserving

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9
Q

Net Leverage

A

Formula: (Net Liabilities + NWP)/Equity

Acceptable range: < 500%

Meaning: stability measure (high ratio means excessive writing)

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10
Q

Adjusted Investment Yield

A

Formula: [2 x (Net InvInc. + OCI)]/(Invested Assets [start of yr] + Invested Assets [end of yr] - Net InvInc. - OCI)

Acceptable range: n/a

Meaning: measures income and capital gains relative to assets

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11
Q

Components Invested Assets (4)

A

Cash
Bonds & Debentures
Common Shares
Real Estate

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12
Q

Formule NEP

A

NEP = NWP - chg(UEP)

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13
Q

% Change in NWP

A

Formula: NWP(yr = x)/NWP(yr = x-1)

Acceptable range: n/a

Meaning: growth measure - high value may indicate capital strain

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14
Q

% Change in GWP

A

Formula: GWP(yr = x)/GWP(yr = x-1)

Acceptable range: n/a

Meaning: growth measure - high value may indicate capital strain

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15
Q

Change in Equity

A

Formula: EQ(yr = x)/EQ(yr = x-1)

Acceptable range: n/a

Meaning: lower value indicates lower ability to support growth

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16
Q

AOCI/Equity

A

Formula: AOCI/Equity

Acceptable range: n/a

Meaning: AOCI relates to unrealized gains/losses

17
Q

Reinsurance Recoveries/Equity

A

Formula: Reinsurance Recoveries/Equity

Acceptable range: n/a

Meaning: high value indicates dependence on Reinsurance Recoveries

18
Q

Net U/W Leverage

A

Formula: NWP/Equity

Acceptable range: < 300%

Meaning: higher ratio indicates capital strain

19
Q

2-yr Combined Operating Ratio

A

Formula: [APV(incurred claims) + Operating expenses]/EP

Acceptable range: < 100%

Meaning: higher ratio indicates U/W loss

20
Q

Overall diversification

A

Formula: (LOB diversity score) x (geographic diversity score)

Acceptable range: > 65

Meaning: score for each factor is from 1-10. A higher score is better because it indicates greater diversity which is a hedge against risk