Question

Explain how the capacity ratio is used to analyze an insurer. Describe how rapid growth can threaten an insurer’s solvency. Explain how an insurer’s investment results can affect its capacity. Describe the methods that can be used to evaluate the investment performance of an insurer. Describe the purpose of the Best’s Capital Adequacy Ratio (BCAR). Describe the purpose of the NAIC’s Insurance Regulatory information System (IRIS). Explain how the NAIC’s Insurance Regulatory information System (IRIS) operates. Identify three of the IRIS tests and explain what each test is intended to measure and what values constitute acceptable results.

Answer 1

Explain how the capacity ratio is used to analyze an insurer

Capacity ratio is used to analyse and insurer it ratio measures the the actual capacity of the new policies made or written

Describe how rapid growth can threaten an insurer’s solvency

Rapid growth is usually caused by growth in written premium and the related expense can drain surplus.

Explain how an insurer’s investment results can affect its capacity

As per GAAP guidelines unless and until security or the investment is not sold it cannot be recognised

Describe the methods that can be used to evaluate the investment performance of an insurer

The performance of a investment of insurer can be seen from earning ratios of the investment

Ratio compares total investment gain to the assets.

Describe the purpose of the Best’s Capital Adequacy Ratio (BCAR)

BCAR is nothing but ratio which measures adequacy of capital invested by insurer with the risk it is undertaking

Describe the purpose of the NAIC’s Insurance Regulatory information System (IRIS)

In a nutshell purpose of NAIC is the to identify the insurer who may default or who are in difficult financial problem for regulators