NAIC IRIS Flashcards
What is IRIS for?
-used in targeting insurers in need of greatest attention
-not intended to replace state in-depth solvency monitoring efforts
What are the IRIS 1,2,3,4 Branded Risk Classifications?
Pricing / Underwriting
Strategic
When should insurers have a lower IRIS 1,2 ?
-with higher concentrations of long-tail lines like WC (harder to reserve)
Why should you review the direct vs assumed split for IRIS 1?
-the insurer has less control over the assumed business (UW criteria used in selecting risks)
investigate the ceding entity further
Why is it okay for IRIS 1,2 to be unusual?
IRIS 1 = if insurer has stable profits and adequate quality reinsurance
IRIS 2 = if insurer has stable profits
Why should you review IRIS 1 on a consolidated basis?
If in a holding company, this can provide a sense of the degree of group leverage
Why is a high IRIS 3 a sign of?
-lack of stability in insurers operations / management
-entry into new business / geographic locations
-attempting to increase cash flow to meet current payments
What should you review when IRIS 3 is unusual?
-is IRIS 9 usual ? => sufficient liquidity to meet cash demands + Schedules A - E
-are loss reserves adequate ? (IRIS 11 - 13) + Schedule P
-unusual IRIS 11-13 could mean trying to get cash infusion to pay
off claims
When is an unusual IRIS 3 okay?
low IRIS 2, good IRIS 11-13, IRIS 5
relatively stable product mix
What is a low (negative) IRIS 3 a sign of?
-insurer trying to increase cash flow related to ceding commissions
-Review IRIS 4
What are 2 reasons why IRIS 4 is important?
high surplus aid could mean PHS is inadequate
surplus aid can improve other ratios and conceal important areas of concern (IRIS 1,2,7,10,13)
How should you adjust IRIS 7 for surplus aid?
Adjust prior and current year PHS!
all other adjustments for IRIS 4 not required to change numerator
Branded risk classification(s) for IRIS 5
Operational
What in particular should you consider when reviewing IRIS 5?
IRIS 11-13; prior year development on reserves can distort profitability
What should the analyst do with an unusual IRIS 11?
-recalculate IRIS 5 without 1yr reserve development included
IRIS 6 (Investment Yield) Branded risk classification(s)
Liquidity, Market, Strategic
What annual statement pieces should you review for IRIS 6?
Schedules A - E, Exhibit of Net Investment Income to determine yields
What can cause low IRIS 6?
-speculative investments (low in short-term)
-big investments in affiliates / home office facilities / tax-exempt bonds
-large interest pmts on borrowed $
-VERY high investment expenses (net investment inc earned after all)
High IRIS 7 indications
instability, can be related to shifting of capital from other companies within a group, or M&A
IRIS 7,8 Branded risk classifications
operational, strategic
What can affect IRIS 7?
basically anything in the capital and surplus account
change in ownership or leadership direction
What is the purpose of IRIS 8 in relation to IRIS 7 ?
to view changes in C&S only due to operations, not C&S paid or transferred in surplus notes
capital changes can mask changes in surplus directly tied to operational issues
Why is IRIS 9 important?
many insurers who become insolvent increase it in their final years
so, consider the trend as well as the current year result
What can cause a high IRIS 9?
companies with large deposits with reinsured companies (not in assets, offsetting liabilities included though)
What should further analysis of IRIS 9 focus on?
adequacy of reserves
proper valuation, mix, and liquidity of assets to determine whether they can meet PH needs
Further analysis for IRIS 10
check if AB over 90 overdue are classified as admitted
What may the insurer be doing if IRIS 12 is consistently worse than IRIS 11?
intentionally understating reserves or deficiencies are appearing as losses paid
What can cause adverse IRIS 11,12 ratios?
strengthening of deficient prior reserves
commutations
changes in tabular discounts
write-offs for uncollectible reinsurance
What can distort IRIS 13?
changes in premium volume
product mix - more liability => understated deficiencies
calculate the ratios separately by product mix
can be used to determine whether insurer has corrected past deficiencies
