automated financial analysis solvency tools

Automated Financial Analysis Solvency Tools

David A. Vacca, CPA Assistant Director

Insurance Analysis & Information Services Department

For Regulators Only

For Regulators Only

Presentation Overview

• Overview of Financial Analysis Solvency Tools

• Databases Serving Other Purposes

NAIC Databases

Financial Data Repository (FDR) Exam Tracking System (Financial and Market) Complaints Special Activities Producer database Change of Control (Form A) Regulator Actions Valuation of Securities

Confidential - Regulator Only

For Regulators Only

Financial Analysis Solvency Tools

• Collection of automated solvency tools designed to provide an integrated approach to screening and analyzing the financial condition of insurers

• Financial Analysis Solvency Tools (FAST)– Navigation Tools– Notification Tools– Analytical Tools– Prioritization Tools– Adhoc Reporting

Tools and Resources

NAIC I-SITE & StateNet

PrioritizationTools Summary

Reports

AnalyticalTools Databases

For Regulators Only

Navigation Tools

For Regulators Only

Number of Insurers Filing to the NAIC

0

1,000

2,000

3,000

4,000

5,000

6,000

2006 2007 2008 2009 2010

P/ C

Life

Health

Fraternal

Title

Confidential - Regulator Only

Electronic Filing - PDFs

Confidential - Regulator Only

Pick-A-Page

• Selection and print capabilities of any financial or demographic information that comes from the annual/quarterly statements filed by insurance companies with the NAIC

Confidential - Regulator Only

Confidential - Regulator Only

Pick-A-Page

Confidential - Regulator Only

Line Reports

• Allow users to compare one line from the annual statement with a group of companies matching the selected criteria (w/ statement type)

Confidential - Regulator Only

Line Report Example

Line Report Example

Company Demographics

Confidential - Regulator Only

Confidential - Regulator Only

Preferences

Validation Exceptions

Confidential - Regulator Only

Confidential - Regulator Only

MyNAIC Portal

Notification Tools

Confidential - Regulator Only

Personalized Information Capture System (PICS)

• Push technology

• Create profile

• Specify criteria

• E-mails generated when data changes for companies/individuals that fit into the criteria specified

Confidential - Regulator Only

Confidential - Regulator Only

Email Notification Tools

PICS notifications go directly to your mail inbox

Confidential - Regulator Only

Confidential - Regulator Only

For Regulators Only

Analytical Tools

NAIC Financial Analysis Handbook• Provides a uniform means for insurance

departments to more diligently identify companies experiencing financial problems or that pose the greatest potential for developing financial problems

• Provides guidance for the insurance departments to define and evaluate particular areas of concern in troubled companies

• Updated annually

Confidential – Regulator Only

For Regulators Only

Financial Analysis Handbook Summary Report

Financial Profile Reports • The Financial Profile Report is a summary of

key financial information for a company over the last five years

• Includes a Financial Summary page

• There are also detailed sections for: Assets, Liabilities, Capital & Surplus, Loss & LAE Reserve Analysis, Income Statement, Cash Flow and Exhibit of Business and Profitability

For Regulators Only

Trend and Ratio Analysis by Insurer

For Regulators Only

Automated Graphs by Insurer

Profile: Peer Analysis Report• Release for Annual 2007 – Life/Health • Released for Annual 2009 – Property/Casualty• Profile defines 10 peer companies based on:

– Line of Business– Number of States Writing Business– Geographic considerations– Closest Asset or Premium Size

• Profile provides financial data and ratio analysis for 10 peer companies

For Regulators Only

P&C Peer Analysis Profile

For Regulators Only

Loss Reserve Projection

Exam Jumpstart

• Analyzes the investment schedules data as compared to SVO VOS database or NRSRO feeds and provides summary of potential errors– CUSIPs

– Rates

– Designations / market value

– Assumed and Ceded Reinsurance

Percentage of Valuation Discrepancies Analysis

For Regulators Only

Prioritization Tools

IRIS Ratio

• 13 ratios for Property/Casualty– Overall– Profitability– Liquidity– Reserve

• 12 ratios for Life and Health• 11 ratios for Fraternal• Asterisks highlight ratios outside usual range

IRIS Ratios

Ratio Analysis• Evaluate the ratio results by analyzing each

component of the calculation• Understand the industry average in relation to

the company’s result• Understand the company’s historical results

and put them in context

IRIS Ratios (P&C)

• Gross Prem. Written/Surplus

• Net Prem. Written/Surplus

• Chg. in Net Writings• Surplus Aid/Surplus• Two-Year Overall

Operating Ratio• Investment Yield• Gross Chg. in Surplus• Net Chg. in Surplus

• Liabilities to Liquid Assets

• Gross Agents’ Balances/Surplus

• One-Year Reserve Development/Surplus

• Two-Year Reserve Development/Surplus

• Estimated Current Reserve Deficiency/Surplus

IRIS Ratios (L&H)

• Net Change in C&S• Gross Change in C&S• Net Income to Total

Income• Adequacy of Investment

Income• Non-Admitted to

Admitted Assets• Total Real Estate &

Mortgages to Cash & Invested Assets

• Total Affiliated Investments to C&S

• Surplus Relief• Change in Premiums• Change in Product Mix• Change in Asset Risk• Change in Reserving

Ratio

For Regulators Only

IRIS Ratios

Prioritizations Tools- IRIS (Only public tool)

Confidential – Regulator Only

Analyst Team System (ATS)

• Available for P&C, Life, Health and Fraternal

• Automated review system that uses statistical analysis, FAST Scores, RBC to assign review levels

– Level A – High level of concern

– Level B – Requires attention

– No level required

• Confirmed by team of State financial analysts and examiners

• ATS Reports

– Analyst Team Comments and Summary of Criteria

For Regulators Only

Adhoc Summary Tools

51

Timely Industry Data

52

Market Share Data

Example of Lead State Report

For Regulators Only

Summary Reports Aggregate Line of Business by State

55

2010 Foreign Exposures

Bonds Common Stock Preferred Stock Total

Canada 107,258,924,947 2,797,033,029 102,720,957 110,158,678,933

United Kingdom 75,260,217,980 14,088,268,833 304,893,974 89,653,380,787

Australia 47,217,472,486 968,525,319 1,090,047 48,187,087,852

Japan 44,692,346,938 1,728,086,885 804,703 46,421,238,526

Netherlands 38,799,783,554 738,047,836 162,105,126 39,699,936,516

Cayman Islands 36,240,026,378 387,264,978 1,065,155,396 37,692,446,752

France 22,287,938,985 952,305,774 985,055 23,241,229,814

Luxembourg 19,801,806,241 350,112,961 786,744,995 20,938,664,197

Bermuda 13,224,942,328 6,244,860,443 419,553,675 19,889,356,446

Germany 12,728,799,616 537,539,479 60,627,058 13,326,966,153

Ten Largest 417,512,259,453 28,792,045,537 2,904,680,986 449,208,985,976

Pct of Total Foreign 78.3% 76.5% 93.3% 78.2%

56

Exposure to Portugal, Italy, Ireland, Greece and Spain

Bonds Common Stock

Preferred Stock

Total

Portugal 820,986,517 10,128,159 0 831,114,676

Italy 2,299,649,997 127,709,987 0 2,427,359,984

Ireland 9,483,497,840 1,198,190,566 24,872,118 10,706,560,524

Greece 1,160,356,800 7,220,451 142,000 1,167.719,251

Spain 6.371,857,588 200,008,446 88,145,795 6,660,011,829

Total 20,136,348,742 1,543,257,609 113,159,913 21,792,766,264

For Regulators Only

Databases Serving Other Purposes

For Regulators Only

Consumer Information Source - CIS

Consumer Information Source (CIS) provides information

about insurance companies to the general public.

Anyone can access key information about insurance

companies, by entering the company name and state.

Information provided:

– Closed insurance complaints– Licensing information– Key financial data

Available via a link from the NAIC home page!

For Regulators Only

CIS – Financial Profile

Financial Profile:• Company Demographic Information• Direct Premium Written By Line of Business• Invested Asset Mix• Three-Year Net Premiums Written• Three-Year Policyholders’ Surplus Trend• Three-Year Income/Loss Trend

For Regulators Only

Questions

• Please contact David Vacca at dvacca@naic.org or 816-783-8134 for questions