Part 14 (NAIC IRIS and Odomirok 20) (****) Flashcards
What are IRIS tests used for
Used by regulators to identify insurers that are in need of regulatory attention
Ratio 1
Name, Ratio, Unusual Range
Name: GWP to PHS
Ratio = GWP / PHS
Unusual Range: Over 900
Ratio 2
Name, Ratio, Unusual Range
Name: NWP to PHS
Ratio: NWP / PHS
Unusual Range: Over 300
Ratio 3
Name, Ratio, Unusual Range
Name: Change in NWP
Ratio = (Current NWP - Prior NWP) / Prior NWP
Unusual Range: Over 33, Under -33
Ratio 4
Name, Ratio, Unusual Range
Name: Surplus Aid to PHS
Ratio = Surplus Aid / PHS
where surplus aid = Ceding commissions % * UEPR
Unusual Range: Over 15
What are the Overall Ratios
1, 2, 3, and 4
What are the Profitability Ratios
5, 6, 7, and 8
Ratio 5
Name, Ratio, Unusual Range
Name: 2 year Overall Operation Ratio
Ratio = 2 year LR + 2 year Exp Ratio - 2 year Investment Income Ratio
Unusual Range: Over 100
Ratio 6
Name, Ratio, Unusual Range
Name: Investment Yield
Ratio = 2 * (Net investment income earned / Cash and invested assets between prior and current year)
Unusual Range: Over 5.5, Under 2
Ratio 7
Name, Ratio, Unusual Range
Name: Gross Change in PHS
Ratio: (Current PHS - Prior PHS) / Prior PHS
Unusual Range: Over 50, Under -10
Ratio 8
Name, Ratio, Unusual Range
Name: Change in Adjusted PHS
Ratio: (Current Adjusted PHS - Prior PHS) / Prior PHS
Unusual Range: Over 25, Under -10
Ratio 9
Name, Ratio, Unusual Range
Name: Adjusted Liabilities to Liquid Asset
Ratio: Adjusted Liabilities / Liquid Assets
Unusual Range: Over 100
Ratio 10
Name, Ratio, Unusual Range
Name: Gross Agent’s Balances to PHS
Ratio: Gross Agent’s balance in course of collection / PHS
Unusual Range: Over 40
What are the Liquidity Ratios
9, 10
What are the Reserve Ratios
11, 12, 13
Ratio 11
Name, Ratio, Unusual Range
Name: 1 year Reserve development to PHS
Ratio: 1 year Reserve development / Prior PHS
Unusual Range: Over 20
Ratio 12
Name, Ratio, Unusual Range
Name: 2 year reserve development to PHS
Ratio: 2 year reserve development / 2nd prior PHS
Unusual Range: Over 20
Ratio 13
Name, Ratio, Unusual Range
Name: Estimated Current Reserve Deficiency to PHS
Ratio: Estimated Deficiency / PHS
Unusual Range: Over 25
GWP for Ratio 1
Gross Written Premium =
Directed Written Premium
+ Reinsurance assumed from affiliates
+ Reinsurance assumed from non-affiliates
What is the ratio for Ratio 1 if PHS is 0 or negative, or if numerator is negative
999 if PHS is 0 or negative
0 if GWP is negative
What does Ratio 1 measure
the adequacy of surplus on a direct and assumed basis excluding the effects of ceded premium
What to consider if Ratio 1 is unusual
Compare to Ratio 2 (NWP: PHS)
The line of business of the insurer
Profitability of the insurer
% of assumed business versus direct
What does it mean if Ratio 1 is largely different than Ratio 2
And what to do
The insurer may be relying too heavily on reinsurance, or involved in a fronting arrangement
Investigate the quality, rating and collectability of reinsurance and the collateral held
What does a small difference between ratio 1 and ratio 2 mean
Sign that reinsurance protection is insufficient (especially if exposed to CAT risk)