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 acceptable range & meaning of the combined operating ratio?
< 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)`