MSA.Ratios Flashcards
What is the formula, acceptable range and meaning of ROA?
ROA = (NI.preTax - TotTax) / 2y Avg of assets
*> 2.6%
Efficiency measure for income generation.
*NI (Net Income)
What is the formula, acceptable range and meaning of ROE?
ROE = (NI.preTax - TotTax)/Eq
> 5.4%
Sustainability of earnings
*NI (Net Income)
What is the formula, acceptable range and meaning of ROR ratio?
ROR = (U/W Income - Capital Gains + Investment Income + Income from subsidies) / GWP
- > 6.2%
Income relative to revenue-generating capacity
*NI (Net Income)
What is the formula, acceptable range and meaning of the Insurance Return on Net EP ratio?
(U/W Income - Capital Gains + InvInc) / NEP
> 4.0%
Core earning capacity
What is the acceptable range and meaning of the Net Loss Reserves / Equity Ratio?
< 200%
High ratio could mean financial distress
What is the formula, acceptable range and meaning of the Net U/W Leverage Ratio?
Net U/W Leverage Ratio= NWP / Eq
< 300%
Higher ratio indicated capital strain
What is the formula, acceptable range and meaning of the Net Leverage Ratio?
Net Leverage Ratio= (Net liabilities + NWP) / Equity
< 500%
Stability measure (high ratio means excess writing)
What is the formula and meaning of the % chg in NWP ratio?
NWP chg = NWP(x) / NWP(x-1)
Growth measure (high value may indicate capital strain)
What is the formula and meaning of the change in equity ratio?
E chg = Eq(x) / Eq(x-1)
Lower value indicated lower ability to support growth.
What is the formula, acceptable range and meaning of the Overall Diversification ratio?
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.
How do you calculate the Net Combined Ratio?
NCOR=(Net incurred losses + Operating Expenses) / NEP
What is the formula, acceptable range and meaning of the Liabilities / Liquid Assets ratio?
Liabilities / Liquid Assets
< 105%
Liquidity measure
What is the formula, acceptable range and meaning of the 1yrDev/Eq ratio?
1 year development / Equity
”> -10%
Adverse development could mean under-reserving
What is the formula and the acceptable range & meaning of the combined operating ratio?
NCOR=(Net incurred losses + Operating Expenses) / NEP
< 100%
Higher ratio indicates U/W loss
How do you calculate the investment yield?
Inv Yield = 2*(Net InvInc) / (Inv Assets(beg) + Inv Assets(end) - Net InvInc)`
Inv Assets= cash+bond+com_share + Real_Est
Net InvInc = InvInc- Inv_exp
How do you calculate the adjusted investment yield? What is the meaning?
2*(NetInvInc + OCI)/(Invested Assets(beg) + Invested Assets(end) - NetInvInc - OCI)
Measures income and capital gains relative to assets
How do you calculate the invested assets? (4 pieces)
Sum of: 1. Cash 2. Bonds & Debentures 3. Common Shares 4. Real Estate
How do you calculate NEP?
hint: NWP ang chg(UEP)
NWP - chg(UEP)
How do you calculate the unpaid claims & adjustment expenses recoverable at the end of the year?
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”.
Give 4 examples of company characteristics not captures in MSA ratios?
- Subjective analysis of market position
- Quality of management
- Quality of reinsurance
- Prospects for growth & innovation
What does diversification score measure?
How closely the insurer tracks the overall Canadian market (in terms of geographic & LOB spread)
