# Analysis Ratio for Insurance Company - DOC by rvd19356

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Name: ________________

Exercise 4: Financial Analysis
RMI 4700

Part I:
Below are key financial numbers for the Savannah Insurance Company. Based on the
data provided, calculate the financial ratios listed and briefly explain what each ratio is
intended to indicate and identify any limitations associated with the ratio. Make sure that
you show all the elements of your calculations. You are encouraged to use Excel to

Note that if you perform all of your calculations according to Dr. Klein’s “definitions” in
his financial analysis reading then your calculations will be consistent. Alternatively, you
can perform your calculations according to A.M. Best definitions. If you attempt to mix
the basis of your calculations, you can run into problems. For example, you cannot use
Best’s definition of the combined ratio and Klein’s definition of the operating ratio and
get a consistent result.

Financial Data for the Savannah Insurance Company
Item                     Amount
Total Liabilities                       \$1,000,000,000
Surplus                                   \$250,000,000
Investment Income                          \$80,000,000
Investment Gain/Loss                       \$90,000,000
Net Losses Incurred                       \$320,000,000
Other Underwriting Expenses               \$125,000,000
Dividends to Policyholders                 \$25,000,000
Net Income                                 \$22,000,000
One-Year Loss Development                  \$30,000,000
Two-Year Loss Development                  \$45,000,000

Calculate and explain the following financial ratios:
 Net Premiums Written to Surplus
 Loss Ratio
 Expense Ratio
 Combined Ratio
 Operating Ratio
 Return on Surplus
 1-Year Loss Development to Surplus
 2-Year Loss Development to Surplus
Part II:
Briefly explain the nature of the following types of financial risks to insurance companies
and for each type of risk indicate at least one financial ratio or measure that could be used
to help assess the risk.
 Interest Rate Risk
 Credit Risk
 Liquidity Risk
 Underwriting Risk

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