Question

In: Finance

Please answer in detail. Management Issues for Non-Depository Institutions I have completed all the necessary ratios/calculations....

Please answer in detail.

Management Issues for Non-Depository Institutions

I have completed all the necessary ratios/calculations. I need help with answering the questions.

A Insurance Company has the following financial statements.

2017 2016
Net Premiums Written 48,612 47,398
Income Statement ($ mils.)
Premiums Earned 42,624 48,321
Loss Expenses 30,746 34,364
Operating Expenses 17,720 17,693
Total Policy Expenses 48,466 52,057
Net Underwriting Gain/Loss -5,842 -3,736
42,624 48,321
Net Investment Income 15,700 19,995
Operating Income before taxes 9,858 16,259
Dividends to Policyholders 6,517 10,361
Income Tax 1,294 1,270
Net Income 2,047 4,628
Ave Investment Yield 4.94% 5.89%
(mils) 2017 2016
Total Assets 381,972 406,529
Liabilities
Total Liabilities 349,069 369,700
Total Equity 32,903 36,829
Total Liability & Equity 381,972 406,529

I calculated all the ratios - Please double check them for me.

2017 2016
NUM = [Premiums Earned – T, Policy Expenses] / T. Assets -1.53% -0.92%
Loss Ratio = [Loss Exp / Premiums Earned] 72.13% 71.12%
Expense Ratio = [Oper Exp / Net Premiums Written] 36.45% 37.33%
Combined Ratio = [Loss Ratio + Expense Ratio] 108.59% 108.45%
Overall Profitability = [100% - Combined Ratio%] + Investment Yield -3.65% -2.56%
Operating Profit Margin (OPM)
Operating ROA (Operating Income/Total Assets) 2.58% 4.00%
Return on Assets (NI/Total Assets) 0.54% 1.14%
Return on Equity (NI/equity accounts) 6.22% 12.57%
Equity Multiplier (Total Assets / Equity) 11.61 11.04
Asset Turnover (revenues/total assets) 0.112 0.119
Net Profit Margin (net income/revenues) 0.048 0.096

QUESTIONS

a. Analyze the trends in all of the ratios, and the other financial information provided.

b. What do they reveal for trends over time including trends as well on the firm’s balance sheet?

c. What areas of strength & weakness are revealed? What advice for improvement would you give?

Solutions

Expert Solution

Hii, I have over viewed the ratios, they are correct

a. NUM has almost doubled in last one year at negative side, Loss ratio has increased with expense ratio has reduced, but seems to be no change as combined ratio is almost same for both years, due to with the over profitability has decreased.

Operating income has decreased and assets have decreased due to which the operating ROA has decreased and Return on assets has also come down.

Return on equity has almost reduced to half due to slight reduction in equities and net income. Due to slight changes in both equities and assets, equity multiplier remains almost same for both years same as asset turnover ratio whereas net profit margins have also reduced.

b Due to slight reduction in assets and equities, the return on equity has become half. With the same reason net income has also come down. Hence it I very necessary to keep an eye on both assets and equity to keep the net income stable. Whereas net premium remains stable.

c Company’s strength was to keep the dividend record similar though the assets and equities have fallen and premiums written were also similar. Whereas weakens was reduction in assets an equities. It’s a suggesting to keep the equities and assets stable.


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