IRIS

Question 1

2 reasons why IRIS Ratio 4 - Surplus Aid to Surplus is of primary importance in the analysis of a company’s financial health

Answer 1

• it may indicate that management believes that surplus is inadequate
• surplus aid may improve the results of the other ratios to such a degree that it conceals important areas of concern

Question 2

Describe the response taken by the regulator in response to the IRIS tests

Answer 2

Failing ratios on the IRIS tests provides regulators an early warning of potential financial problems of an insurer. The regulators prioritize resources on companies with more failing tests. The tests indicate in which areas to further investigate.