Analysis Ratio for Insurance Company - DOC by rvd19356


Analysis Ratio for Insurance Company document sample

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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
perform and show your calculations.

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 Admitted Assets                   $1,250,000,000
                  Total Liabilities                       $1,000,000,000
                  Surplus                                   $250,000,000
                  Net Premiums Written                      $535,000,000
                  Net Premiums Earned                       $480,000,000
                  Investment Income                          $80,000,000
                  Investment Gain/Loss                       $90,000,000
                  Net Losses Incurred                       $320,000,000
                  Total Loss Adjustment Expense              $78,000,000
                  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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