Level A companies requiring immediate attention and financial analysis by

Level a companies requiring immediate attention and

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1. Level A: companies requiring immediate attention and financial analysis by regulatory officials 2. Level B: companies possibly having adverse results but not requiring immediate attention 3. Reviewed, no level: companies deemed not to require specific attention by the regulators The analysis results are merely a first step in identifying insurers requiring further investigation; they are not intended to be a comprehensive evaluation or opinion on the financial soundness or solvency of a company. Reports prepared by the team are confidential and are made available only to state insurance regulators. Odomirok – ch21 (pg 207-216) – Measurement Tools Question: What are the two perspectives on financial health measured by the statutory financial statement? Answer: Balance sheet strength and earnings potential. Odomirok – ch21 (pg 207-216) – Measurement Tools Question: How do the IRIS ratios measure financial health of insurance companies? Answer: The IRIS ratios focus on balance sheet strength and the earnings quality through measures that assess growth, profitability, liquidity, and reserve development/adequacy. * Odomirok – ch21 (pg 207-216) – Measurement Tools Question: How do the IRIS ratios and the RBC formula work together? Answer: The National Association of Insurance Commissioners (NAIC) Analyst System Team reviews the results of the IRIS values in conjunction with other solvency monitoring tools, such as Risk-Based Capital (RBC), to prioritize those insurance companies requiring immediate regulatory attention.
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Page 11 of 11 CAS, C2: Using RBC formulas and IRIS ratios, evaluate an insurer’s financial health. Odomirok – ch21 (pg 207-216) – Measurement Tools Question: How is the RBC formula used to measure financial health of insurance companies? Answer: RBC is another tool that considers balance sheet strength and future earnings. Balance sheet risk is considered in the asset reserve risk charges (R0 through R4), while profitability of future writings is contemplated through the written premium risk charge (R5). * Odomirok – ch21 (pg 207-216) – Measurement Tools Question: How do RBC and IRIS ratios differ? Answer: RBC considers the risks and relative size of an insurance company in computing a required level of capital, whereas under IRIS, no adjustments are made to reflect what would be “usual” for an individual insurance company. Unlike IRIS, there is a direct link to regulatory intervention based on a comparison of the RBC required capital to the company’s adjusted capital. Odomirok – ch21 (pg 207-216) – Measurement Tools Question: What’s the main reason RBC is not a fail-safe test for financial impairment? Answer: The majority of the factors used to determine the level of required capital are based on industry-wide factors developed by the NAIC. As a result, while a company’s RBC ratios may not require any specific action by the company management or regulatory authorities, this doesn’t mean that the company is safe from future impairment.
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