IRIS Ratios

Question 1

What is the Formula for IRIS Ratio 1

Answer 1

Policy Holder Surplus

Gross Written Premium is
Direct Written Premium Plus Assumed Reinsurance (Affiliates and Non Affiliates

Question 2

What is the Usual Range for range for IRIS-1

Answer 2

Usual range is upto 900%. That is x <= 900%

Question 3

Why is a high IRIS-1 Ratio bad

Answer 3

The higher the ratio, the more risk insurer bears in relation to the PHS.

Question 4

What could cause a large disparity b/w IRIS-1 and IRIS-2

Answer 4

The insurer might be relying too much on reinsurance. Which isnt inherently a bad thing, if the financial strength of the insurers and their payment timings are strong and prompt.

Question 5

Should IRIS-1 Ratio differ based on Casualty vs Property lines

Answer 5

Casualty lines, such as WC, are long tail lines where the outcomes and ultimate losses are less certain. Insurance companies mostly in Casualty lines should maintain a lower IRIS-1 ratio

Question 6

What is the Formula for IRIS ratio 2

Answer 6

Policy Holder Surplus

Question 7

What is the usual range for IRIS-2

Answer 7

The usual range is less than equal to 300%. That is X <= 300%

Question 8

List 5 things to consider if IRIS-2 is high

Answer 8

1. The financial strength of reinsurers
2. Determine the level of adequacy of insurers’ protection against large losses. evaluate retention.
3. Review the split between casualty and property lines. Casualty lines should have lower IRIS-2 ratios.
4. Evaluate whether the insurers business is overall, and over the years profitable or not.
5. If the insurer is within a holding company system, consider evaluating the ratio on a consolidated basis.

Question 9

What is the formula for IRIS-3

Answer 9

NWP Previous Year

Change in NWP = (Current Year NWP - Previous Year NWP)

Question 10

What is the usual range for IRIS-3 Ratio

Answer 10

The usual range for IRIS-3 is -33% to +33%. That is

-33% <= X <= +33%

Question 11

What could a large increase in IRIS-3 indicate about the insurer

Answer 11

1. Entry into new LOBs and New regions

2. Insurer maybe attempting to increase cashflow to cover current loss payments.

Question 12

What could a large decrease in IRIS-3 indicate about the insurer

Answer 12

1. Discontinuance of certain lines of business
2. scaled back writings due to large losses
3. loss of market share due to competition
4. Increased use of reinsurance

Question 13

Which metrics should be evaluated if there is sufficient instability present in IRIS-3

Answer 13

1. Determine if the insurers assets are properly valued.
2. Review IRIS-9, adjusted liabilities to liquid assets. Review schedules A through E.
3. Review the insurer’s loss reserves. Review IRIS 11 to 13, and also Schedule P.

Question 14

What is the formula for IRIS-4

Answer 14

Policy Holder Surplus

Question 15

What is the usual range for IRIS-4

Answer 15

Less than 15%

Question 16

What does an unusually high IRIS-4 ratio indicate

Answer 16

1. may indicate that the management believes PHS to be inadequate.

Question 17

Which ratios should be recalculated if IRIS-4 ratio is high ( > 15%)

Answer 17

1. IRIS 1, 2, 7, 10, 13

Question 18

What is IRIS-5 Ratio Called

Answer 18

Two Year Overall Operating Ratio

Question 19

What is the formula for IRIS-5

Answer 19

Two year Loss Ratio
+
Two year Expense Ratio
- Two Year Investment Income Ratio

Question 20

What is the Formula for Two Year Loss Ratio (IRIS5)

Answer 20

(2yr Earned Premium)

Question 21

What is the Formula for Two Year Expense Ratio (IRIS5)

Answer 21

Two year net Premiums Written

Question 22

What is the formula for Two year Net investment income earned (IRIS5)

Answer 22

2-Year premiums earned

Question 23

Why do we subtract the Investment Income Ratio from the Calculation of IRIS-5 Ratio

Answer 23

The Subtraction of Investment Income allows insurers a credit for their investment income to offset their underwriting losses

Question 24

What is the normal Range for IRIS-5

Answer 24

The normal range for IRIS-5 is less than 100%

that is x < 100%

Question 25

What are the reasons for a high expense ratio in IRIS-5

Answer 25

High commissions & brokerage fees Excessive salaries Other operating expenses

Question 26

What are the reasons for a high loss ratio in IRIS-5

Answer 26

1. Large amount of losses incurred on poorly developed lines 2. Strengthening reserves on certain lines of business

Question 27

What other ratio should we consider when looking at IRIS-5

Answer 27

Take a look at IRIS-11, and IRIS-13. Because Prior year reserve development of current year reserve deficiency may under/overstate the true operating position of an insurer

Question 28

What is the name and Formula for IRIS-6

Answer 28

Investment Yield 2 * (Net Investment Income Earned) --------------------------------------------------------------------------- Average Cash and Invested Assets, (Current & prior)

Question 29

What does the IRIS-6 Ratio Measure

Answer 29

Provides the percentage of annual income on an investment portfolio.

Question 30

What maybe the cause of low IRIS-6 Ratios. low investment yields?

Answer 30

1. Speculative investments 2. Large investments in affiliated entities under the control of the company 3. Large investments in home office facilities 4. Considerable investments in Tax-Exempt bonds 5. Significant interest payments on borrowed money 6. Extraordinary high investment expenses

Question 31

What is the Usual range for IRIS-6

Answer 31

it is greater than 2% and less than 5.5%

Question 32

What maybe the cause of high IRIS-6 Ratios, high investment yields

Answer 32

1. Investments in high risk instruments | 2. Extraordinary dividend payments from subsidiaries to parents

Question 33

What is the name and formula for IRIS-7 ratio

Answer 33

Gross change in policy holders surplus Gross change in PHS ------------------------------------------------- Policy Holders Surplus Prior Year

Question 34

What is the usual range for IRIS-7 Ratio

Answer 34

The usual range for IRIS-7 is from -10% to 50%

Question 35

What can cause a decrease in IRIS-7 and what should the analyst investigate

Answer 35

1. Decrease in Net Income 2. Unrealized Capital Gains or Losses 3. Dividends to Stockholders 4. Changes in non admitted assets 5. Change in surplus aid from Reinsurance 6. Accounting changes or correction of errors 7. Change in Net deferred assets 8. Change in ownership or program direction

Question 36

What can cause a sudden increase in IRIS-7, Change in Surplus

Answer 36

Large increase in surplus can be a sign of instability and could indicate shifting of capital from other companies within a group, significant growth , or mergers and acquisitions

Question 37

What is the name and formula for IRIS-8

Answer 37

Change in Adjusted Policyholders Surplus Adjusted Policy Holders Surplus ----------------------------------------------------- Policy Holders Surplus

Question 38

What is the Formula for Adjusted Policy Holders Surplus in IRIS-8 Formula

Answer 38

``` PHS Current Year minus Change in Surplus Notes minus Capital Paid-in or transferred minus Surplus Paid-in or Transferred minus PHS Prior year ```

Question 39

What does IRIS-8 attempt to measure

Answer 39

The ration attempts to measure the insurers financial health during the year based on operational results.

Question 40

What is a normal range for IRIS-8

Answer 40

The normal range for IRIS-10 is less than 25% and greater than -10%

Question 41

Which factors can cause a significant increase or decrease in PHS

Answer 41

Same as IRIS-7