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Detail Outline for Exam 7 – 2007 Part C - page 22 / 28

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Ettlinger, Chapter 6: Solvency Regulation

Statistical Phase

IRIS Ratios – designed to evaluate: overall financial condition, profitability, liquidity, and reserves.

12 ratios listed below in Exh 6-3.

When an insurer abruptly changes rate structure, U/W-ing policy, or reserving practice, this can produce unusual values in (1) the change in net writing ratio (-33,+33) or (2) change in surplus ratio (-10, +50).

FAST Ratios

Analytical Phase

Financial Analysis Working Group (FAWG)

Examiner Team Process

State Regulators’ Bench Audits

Financial Examinations

Scheduling the Examination by Priority

Planning and Conducting the Examination

Scope of Examination

Full Scope Examinations

Limited Scope Examinations

Special Association Examinations

Accreditation of State Insurance Departments

Objectives of the Program

Requirements for Accreditation

Laws and Regulations

Regulatory Practices and Procedures

Organizational and Personnel Practices

Summary

Exhibit 6-1. Comparison of SAP-Based and GAAP-Based Financial Statements – an example of how an acquisition expense looks different between the two statements.

Exhibit 6-3. IRIS Tests for Property-Liability Insurers

Overall Financial Condition Ratios

Gross Premium to Surplus

Net Premium to Surplus

Change in Net Writings

Surplus Aid to Surplus

Profitability Ratios

Two-Year Overall Operating Ratio

Investment Yield

Change in Surplus

Liquidity Ratios

Liabilities to Liquid Assets

Agents’ Balances to Surplus

Reserve Ratios (covered in Feldblum)

One-Year Reserve Development to Surplus

Two-Year Reserve Development to Surplus

Estimated Current Reserve Deficiency to Surplus

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