MSA.Ratios Flashcards

1
Q

What is the formula, acceptable range and meaning of ROA?

A
ROA = (NI.preTax - TotTax) / 2y Avg of assets

*> 2.6%

Efficiency measure for income generation.

*NI (Net Income)

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2
Q

What is the formula, acceptable range and meaning of ROE?

A
ROE = (NI.preTax - TotTax)/Eq

> 5.4%

Sustainability of earnings

*NI (Net Income)

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3
Q

What is the formula, acceptable range and meaning of ROR ratio?

A
ROR = (U/W Income - Capital Gains + Investment Income + Income from subsidies) / GWP
  • > 6.2%

Income relative to revenue-generating capacity

*NI (Net Income)

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4
Q

What is the formula, acceptable range and meaning of the Insurance Return on Net EP ratio?

A

(U/W Income - Capital Gains + InvInc) / NEP

> 4.0%

Core earning capacity

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5
Q

What is the acceptable range and meaning of the Net Loss Reserves / Equity Ratio?

A

< 200%

High ratio could mean financial distress

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6
Q

What is the formula, acceptable range and meaning of the Net U/W Leverage Ratio?

A
Net U/W Leverage Ratio= NWP / Eq

< 300%

Higher ratio indicated capital strain

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7
Q

What is the formula, acceptable range and meaning of the Net Leverage Ratio?

A
Net Leverage Ratio= (Net liabilities + NWP) / Equity

< 500%

Stability measure (high ratio means excess writing)

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8
Q

What is the formula and meaning of the % chg in NWP ratio?

A
NWP chg = NWP(x) / NWP(x-1)

Growth measure (high value may indicate capital strain)
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9
Q

What is the formula and meaning of the change in equity ratio?

A
E chg = Eq(x) / Eq(x-1)

Lower value indicated lower ability to support growth.

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10
Q

What is the formula, acceptable range and meaning of the Overall Diversification ratio?

A
Diver Ratio = LOB diversity score x geographic diversity score

> 65

Score is from 1-10.
A higher score is better since it indicates greater diversity which is a hedge against risk.

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11
Q

How do you calculate the Net Combined Ratio?

A
NCOR=(Net incurred losses + Operating Expenses) / NEP
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12
Q

What is the formula, acceptable range and meaning of the Liabilities / Liquid Assets ratio?

A

Liabilities / Liquid Assets

< 105%

Liquidity measure

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13
Q

What is the formula, acceptable range and meaning of the 1yrDev/Eq ratio?

A

1 year development / Equity

> -10%

Adverse development could mean under-reserving

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14
Q

What is the acceptable range & meaning of the combined operating ratio?

A

< 100%

Higher ratio indicates U/W loss

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15
Q

How do you calculate the investment yield?

A
Inv Yield = 2*(Net InvInc) / (Inv Assets(beg) + Inv Assets(end) - Net InvInc)
`
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16
Q

How do you calculate the adjusted investment yield? What is the meaning?

A

2*(NetInvInc + OCI)/(Invested Assets(beg) + Invested Assets(end) - NetInvInc - OCI)

Measures income and capital gains relative to assets

17
Q

How do you calculate the invested assets? (4 pieces)

A
Sum of:
1. Cash
2. Bonds & Debentures
3. Common Shares
4. Real Estate
18
Q

How do you calculate NEP?

hint: NWP ang chg(UEP)

A

NWP - chg(UEP)

19
Q

How do you calculate the unpaid claims & adjustment expenses recoverable at the end of the year?

A
UCAE Rec = Gross UCAE + Net UEP - Net liab
     where: 
         Net UEP = Gross UEP - UEP Rec
           Gross UEP = Tot Liab - Gross UCAE
           Tot Liab = Assets - Eq
          Net Liab = Eq * ( overall net lev ratio - net UW lev ratio)

“Net” basically just means “Net of Reinsurance”.

20
Q

Give 4 examples of company characteristics not captures in MSA ratios?

A
  1. Subjective analysis of market position
  2. Quality of management
  3. Quality of reinsurance
  4. Prospects for growth & innovation
21
Q

What does diversification score measure?

A

How closely the insurer tracks the overall Canadian market (in terms of geographic & LOB spread)

22
Q

How do you calculate the Non-liquid Assets?

A
Non-liquid Assets = Assets - Liquid Assets
Assets = Liabilities + Eq