Financial Analysis of Insurance Companies

Analyzing insurance companies is very different from analyzing corporates and thus presents unique challenges and industry specific issues. In this fast-paced two-day seminar, learn the financial analytical techniques to assess financial strength and operating performance of property & casualty and life & health insurance companies domiciled in the United States.

Beginning with an overview of accounting fundamentals for insurance companies, the seminar quickly progresses to more complex accounting and reporting issues, such as reinsurance, reserving practices, investment valuation and impairment. This course provides an excellent foundation for understanding and analyzing statutory and U.S. GAAP financial statements, industry ratios, capital adequacy, regulatory issues, rating agency assessments, and early warning signs of financial distress.

15-Sep-2008 -- 16-Sep-2008ChicagoUSD$2375
NY Institute of Finance - Chicago9:00am - 4:30pm Instructional Method:
Group-Live
Instructor(s): [ Marc Cherney; ] Mon Tue Level: Intermediate
CPE Credits: 14

22-Sep-2008 -- 23-Sep-2008New YorkUSD$2375
NY Institute of Finance - Midtown9:00am - 4:30pm Instructional Method:
Group-Live
Instructor(s): [ Marc Cherney; ] Mon Tue Level: Intermediate
CPE Credits: 14

Financial analysts, credit analysts, ratings analysts, underwriting managers, accountants, auditors, regulators, and others who seek a fundamental, yet comprehensive understanding of the tools & techniques used to analyze an insurance company's financial condition and operating performance.
No advance preparation required.
Students will be able to:
  • Describe major industry trends and challenges
  • Compare and contrast statutory and U.S. GAAP accounting
  • Differentiate between admitted and non-admitted assets
  • Identify major SAP to GAAP reconciling items
  • Differentiate between
  • Explain how an insurer values and accounts for acquisition costs
  • Describe how an insurance company calculates it's reserves
  • Differentiate between loss reserves, policy reserves, LAE, UPR and IBNR
  • Differentiate between
  • Identify the key elements of risk transfer in a reinsurance agreement
  • Compute various ratios to assess an insurer's operating results
  • Explain the methodologies used by rating agencies
  • Describe the key components of the NAIC's risk-based capital (RBC) formula
  • Identify warning signs of an insurer experiencing financial distress
  • Forecast the combined ratio required to achieve a desired ROE target
  • Predict how changes in key variables will affect an insurer's financial results
  • Describe the likely impact of international accounting (IFRS) on the insurance industry
  • Refresh your knowledge of key insurance terms and concepts
A basic understanding of GAAP accounting principals, and the key features of property/casualty & life/health insurance products (including annuities) is helpful.
Day One

Introduction

  • Industry overview and analysis
  • Recent scandals and shenanigans
  • Emerging issues and challenges

Statutory Accounting Principles (SAP)

  • Regulatory environment
  • Development of statutory accounting
  • Objectives of solvency regulation
  • Overview of insurance company financial statements: SAP

Generally Accepted Accounting Principles (GAAP)

  • Regulatory environment
  • Development of U.S. GAAP
  • Objectives of U.S. GAAP
  • Overview of insurance company financial statements: U.S. GAAP

Statutory vs. GAAP Comparisons

  • Solvency vs. going concern concept
  • Admitted vs. non-admitted assets
  • Comparisons of reserving methods
  • Accounting for revenues & expenses
  • Accounting for acquisition costs
  • Capital & surplus reconciliations

Asset Valuation

  • Invested assets: bonds, stocks, real estate, mortgage loans, receivables, goodwill and intangibles
  • Impairment & impairment tests
  • Receivables
  • Deferred acquisition costs (DAC)

Day Two

Operations Analysis

  • Premiums written vs. earned
  • Losses paid vs. incurred
  • Operating expenses
  • Net investment income earned
  • Realized capital gains (losses)
  • Impact of reinsurance

Reinsurace Transactions

  • Definition of reinsurance
  • Types of reinsurance
  • Ceded and assumed reinsurance
  • Affect of reinsurance on operations
  • Reinsurance assets
  • Reinsurance liabilities
  • SAP vs. GAAP differences
  • Finite risk reinsurance
  • Testing for risk transfer

Financial & Rating Agency Measures

  • Capacity ratios
  • Liquidity ratios
  • Leverage ratios
  • Profitability ratios
  • Financial ratings: What do they mean?

Capital Adequacy Analysis

  • Statutory solvency analysis
  • NAIC's risk-based capital (RBC) formula
  • Rating agency capital adequacy measures (BCAR)
  • Warning signs of financial difficulties

Financial Forecasting

  • Establishing required rates of return
  • Correlating combined ratios with ROE

Liability Valuation

  • Case &IBNR reserves
  • Policyholder benefits
  • Claim reserves
  • Annuity reserves
  • Loss adjustment expense (LAE)
  • Unearned premium reserve (UPR)
  • Deposit Liabilities
  • Assessing reserve adequacy

Case Problem for Analysis & Discussion

  • Ferrari profit equation formula: P&C
  • Life & health forecasting methods

IFRS: A Looming Challenge

  • Background
  • Project Phase I
  • Project Phase II
  • Exposure draft
  • Current Developments

Case Problem for Analysis and Discussion

Clients who register for this course will receive a complimentary 6 month subscription to the Financial Times and FT.com. The Financial Times is the world's most respected financial newspaper providing a broad assessment on finance, business and the industrial sector. Subscriptions will start within 6-8 weeks of the application process, and are limited to one per client. For questions about your subscriptions call 800-628-8088 or email uscirculation@ft.com. US and Canada enrollees only. Lunch included for all students taking day classes.

Lunch included for all students taking day classes.