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  1. Problems w benchmark leverage ratio
    • not all risks are related the same to P (cr risk, inv risk)
    • ignores past reserving exposure
    • each insr has unique amt of S dependant on risk exposure
  2. 2 meaningful measures of S
    • req S of insurance group
    • req marginal S for a specific chg in A/L/P
  3. Income definition & rate of return
    • annual incr in net worth of business from actual ops
    • Inc = chg in S + div - paid in capital
    • ror = dS/S; independant of S defn (GAAP, Stat)
  4. Fair & reasonable return
    • similar to other cpies w similar risk
    • sufficient to attract capital
  5. Rate of return adequacy
    • ad if industry attracts capital
    • ad if new cpies are being formed
    • inad if div > capital inflow
    • inad if cpies are leaving the market
    • regulation only requires opportunity to earn reasonable return
  6. Mutual vs Stock insurers
    • mutual: provide availability of insurance
    • stock more insolvency: more focused on comm, high leverage
    • need to incr S to fund: (1) exp & clm infl (2) incr in aggregate res (3) incr in demand for ins (4) div (stock)
  7. Why return on book is fair?
    • ratio of mkt to bk roughly same benchmark from all ind
    • actual return on bk value close to required ror
Card Set
Analysis of Surplus & Rate of Return without using Leverage Ratios
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