Download Financial Ratio Analysis for Property-Liability

Financial Ratio Analysis for
Property-Liability Insurers
1
RIHM 3505
DR. WEISS
Introduction
2
How d0 you know if an insurer is successful?
Use financial ratio analysis
statutory data
Types of financial ratios
Capacity (or Leverage)
Liquidity
Profitability
Capacity Ratios
3
Determined from capital, called ____________.
Growth places a strain on insurer’s surplus:
1.
2.
Investments also affect capacity. What happens to realized and
unrealized capital gains (losses)?
Exposure to potential losses represented by ________.
Capacity Ratios (Cont’d)
4
Two capacity ratios:
1. Net Premiums Written/Surplus
Range for this ratio:
primarily reflects what kind of risk?
Some problems with this ratio as measure of
capacity:
1.
2.
Capacity Ratios (Cont’d)
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2. Reserves to Surplus Ratio
Measures _________.
Use loss reserves, UPR, and loss adjustment
expense reserves to calculate ratio.
How is this affected by reserving errors?
How is this ratio affected by liability lines?
Other variations of this ratio:
loss reserves to surplus
net liabilities to surplus
gross leverage ratio = net leverage
ratio + ceded reinsurance ratio
Liquidity Ratios
6
Definition of liquidity:
1. Liquidity ratio = liquid investments/(UPR +
Loss and LAE Reserves)
liquid investments =
2. Quick Liquidity ratio = quick assets/net liabilities
2.
3.
Quick assets =
Net liabilities =
3. Overall liquidity ratio = total assets/total liabilities
Profitability Ratios
7
Underwriting and investment income make up profit.
1. Combined ratio = loss ratio + expense ratio
2. Overall operating ratio =
combined ratio – net investment income ratio
3. Investment yield ratio =
investment returns/invested assets
4. Return on Policyholders Surplus =
net income /Surplus
Other Ratios
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1. Change in Writings ratio
2. Surplus aid to policyholders surplus ratio
3. Gross change in policyholders’ surplus ratio
4. One year Reserve Development to
policyholders’ surplus ratio