Ratios Flashcards
Nature of business
Investment income/ premiums (or claims)
Real LT assets/ total assets
Claim settlement pattern
Time to settlement = 1/(Claims paid / OS and future claims reserve)
Financial strength
Solvency margin = Asset/ liabilities
Profitability and performance
- Gross and net claim ratio
- Expense and commission ratio
- Investment performance = investment income/ assets
- Return on capital = Post-tax profit/ free reserves at start of year (=total end of year reserves – post-tax profit)
- Profit margin = profit (gross/net) / net earned premium
Investment income/ premiums (or claims)
High = class with long term claims (eg liability claims)
Real LT assets/ total assets
High – implies large proportion of liabilities are LT and real
Reinsurance
Large diff between reins ceded based on premium and based on claim indicates good/poor value or more/less claims than average Proportion reinsured = high = new/unusual/volatile class of business
Solvency margin = Asset/ liabilities
- Need to compare to regulatory minimum and that of competitors
- High risk business (eg liability) = higher than average sol margin
- Look at previous years for trends in ratios
- Consider strength of provisioning basis
Gross and net claim ratio
- Longer tail business may be higher, as insurer can expect sufficient investment income to offset losses due to claims
- High ratios may also be due to one-event or market may be at the bottom of the UW cycle
Expense and commission ratio
Consider level of NB – if this is volatile than pattern of premiums, claims and expenses will be distorted
Investment performance = investment income/ assets
- Consider if realised/ unrealised gains are included in income figure (and therefore in profit and loss account)
- Ideally take average of start of year and end of year asset value figure
Ret on capital/ prof margin
Consider trends, unusual events, strength of basis and competitors
