Automated Financial Analysis Solvency Tools David A Vacca

Automated Financial Analysis Solvency Tools David A. Vacca, CPA Assistant Director Insurance Analysis & Information Services Department For Regulators Only

Presentation Overview • Overview of Financial Analysis Solvency Tools • Databases Serving Other Purposes For Regulators Only

NAIC Databases n n n n 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

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 For Regulators Only

Tools and Resources NAIC I-SITE & State. Net Prioritization Tools Summary Reports Analytical Tools Databases

Navigation Tools For Regulators Only

Number of Insurers Filing to the NAIC For Regulators Only

Electronic Filing - PDFs Confidential - Regulator Only

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

Pick-A-Page Confidential - Regulator Only

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

My. NAIC 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

Email Notification Tools Confidential - Regulator Only

PICS notifications go directly to your mail inbox Confidential - Regulator Only

Confidential - Regulator Only

Analytical Tools For Regulators Only

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

Financial Analysis Handbook Summary Report For Regulators Only

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

Trend and Ratio Analysis by Insurer For Regulators Only

Automated Graphs by Insurer For Regulators Only

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

P&C Peer Analysis Profile For Regulators Only

Loss Reserve Projection For Regulators Only

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

Prioritization Tools For Regulators Only

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

IRIS Ratios For Regulators Only

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

Adhoc Summary Tools For Regulators Only

Timely Industry Data 51

Market Share Data 52

Example of Lead State Report

Summary Reports Aggregate Line of Business by State For Regulators Only

2010 Foreign Exposures Bonds Common Stock Preferred Stock Total 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, 153 417, 512, 259, 453 28, 792, 045, 537 2, 904, 680, 986 449, 208, 985, 976 78. 3% 76. 5% 93. 3% 78. 2% Canada Ten Largest Pct of Total Foreign 55

Exposure to Portugal, Italy, Ireland, Greece and Spain Bonds Common Stock Preferred Stock Total 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 Portugal 56

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: • 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 For Regulators Only