In: Finance
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?
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.