RIHM 3505

1
Financial Ratio Analysis for Property-Liability
Insurers

• RIHM 3505
• Dr. Weiss

2
Introduction

• How d0 you know if an insurer is successful?
• Use financial ratio analysis
• statutory data
• Types of financial ratios
• Capacity (or Leverage)
• Liquidity
• Profitability

3
Capacity Ratios

• Determined from capital, called ____________.
• Growth places a strain on insurers surplus
• 1.
• 2.
• Investments also affect capacity. What happens
  to realized and unrealized capital gains
  (losses)?
• Exposure to potential losses represented by
  ________.

4
Capacity Ratios (Contd)

• Two capacity ratios
• 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.

5
Capacity Ratios (Contd)

• 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

6
Liquidity Ratios

• Definition of liquidity
• 1. Liquidity ratio liquid investments/(UPR
  Loss and LAE Reserves)
• liquid investments
• Quick Liquidity ratio quick assets/net
  liabilities
• Quick assets
• Net liabilities
• Overall liquidity ratio total assets/total
  liabilities

7
Profitability Ratios

• 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

8
Other Ratios

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