MSA Ratio

Question 1

Give examples of company characteristics not captured in MSA Ratios. (4)

Answer 1

• subjective analysis of market position
• quality of management
• quality of reinsurance
• prospects of growth & innovation

Question 2

What does the diversification score measure?

Answer 2

• it measures how closely the insurer tracks the overall Canadian market (in terms of geographic & LOB spread)
• if the diversification score is > 65, then the company is highly diversified

Question 3

Give and example of an insurer with low and a high diversification score.

Answer 3

LOW: niche insurers
HIGH: national, multi-line insurers

Question 4

Compare ROE (Return on Equity) vs ROR (Return on Revenue).

Answer 4

ROE: Return to ShareHolders per unit of capital
ROR: Income relative to the revenue-generating capacity