click below

click below

Normal Size Small Size show me how

# CPCU 520-13

### Chapter 13

Question | Answer |
---|---|

Capacity or Premium to surplus Ratio | A ratio that mes. the extent to which insr. can issue policies for new business by comparing an insurer's net written premiums to policyholder's surplus |

Liquidity Ratio | A ratio measuring the extent that an insurer can meet its obligations as they come due a [Formula] the sum of cash + invested assets divided by unearned premium reserve + adjusted reserves |

Operating Ratio | A ratio that meas. an insurer's overall pretax operational profitability from UW and investment activities [Formula] combined ratio - investment ratio |

Investment earning ratio | a ratio that measures the return on invested funds by showing the relationship between net investment income and avg. admitted assets. |

Investment profit ratio | A ratio that measures the return of invested funds by div. total investment profit (loss) by avg. admitted assets. |

Return on net worth ratio | a ratio that relates net income to the insurer's net worth (policyholders' surplus). |

Earnings per share (EPS) | A ratio that is calculated by div. net income by the weighted avg. number of common shares outstanding during the accounting period. |

Quick liquidity ratio | A ratio that measures short term liquidity by comparing quick assets by net liabilities. |

Current liquidity ratio | the ratio of the sum of all cash and all unaffiliated invested assets (excluding real estate) to net liabilities and ceded reinsurance balances payable, expressed as a percentage. |

Overall liquidity ratio | A ratio that measures the ability to pay net liabilities with total assets and that is calculated by dividing total admitted assets by total liabilities minus conditional reserves |

Operating cash flow test | a measure of the liability to meet current obligations through internally generated funds. |

Class 3-6 Bonds to PHS Ratio | The ratio of non investment grade bonds to policyholder surplus. |

change in net premiums written | a measure of the growth in an insurer's uw loss exposure |

Net premiums written to policyholder's surplus (Net premiums written leverage ratio) | A ratio that measures leverage resulting from current premium writings |

Net liab. to policyholder's surplus (net liability leverage ratio) | A ratio that determines an insurer;s loss exposure to unpaid obligations, unearned premiums, and reserving errors. |

Net leverage ratio | a ratio that measures an insurer's loss exposure to both pricing errors and erros in estimating liabilities, after reinsurance, in relation to policyholders surplus. |

Ceded reinsurance leverage ratio | a raatio that measures an insurer's dependence on reinsurers and its loss exposure to the possibility that it might be unable to collect amounts due from reinsurers. |

Ceded reins. leverage ratio [Formula] | the sum of reinsurance premiums ceded plus reinsurance recoverables minus funds held from reinsurers, divided by surplus |

Gross leverage ratio | a ratio that measures an insurer's loss exposure caused by pricing errors in its current book of business, reserve estimation errors, and reinsurance exposure [formula] net leverage ratio + ceded reins. ratio |

Loss reserves to policyholders' surplus ratio | a ratio that measures the trend and magnitude of an insurer's total loss reserves to surplus. |

Loss development to policyholders' surplus ratio | a meas. of reserve deficiency or redundancy in relation to surplus that reveals the degree to which year end surplus was either under or over stated. |

Loss reserve development to net premiums earned ratio | a ratio that is calculated for the most recent five years and measures the degree to which an insurer's loss reserves are keeping pace with its premium growth. |