Automated Financial Analysis Solvency Tools David A. Vacca, CPA Assistant Director Insurance Analysis & Information Services Department For Regulators Only © 2009 The National Association of Insurance Commissioners All Rights Reserved

Presentation Overview Overview of Financial Analysis Solvency Tools Databases Serving Other Purposes For Regulators Only © 2009 The National Association of Insurance Commissioners All Rights Reserved

Confidential - Regulator Only 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

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 © 2009 The National Association of Insurance Commissioners All Rights Reserved

Tools and Resources NAIC I-SITE & StateNet Prioritization Tools Analytical Tools Summary Reports Databases

Navigation Tools For Regulators Only

Number of Insurers Filing to the NAIC For Regulators Only © 2009 The National Association of Insurance Commissioners All Rights Reserved 7

Confidential - Regulator Only Electronic Filing - PDFs Confidential - Regulator Only © 2009 The National Association of Insurance Commissioners All Rights Reserved

Confidential - Regulator Only © 2009 The National Association of Insurance Commissioners All Rights Reserved

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

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

Confidential - Regulator Only Company Demographics Confidential - Regulator Only

Confidential - Regulator Only

Preferences

Confidential - Regulator Only Validation Exceptions Confidential - Regulator Only

Confidential - Regulator Only

MyNAIC Portal

Confidential - Regulator Only 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 Confidential - Regulator Only © 2009 The National Association of Insurance Commissioners All Rights Reserved

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 © 2009 The National Association of Insurance Commissioners All Rights Reserved

FAH

FAH

Financial Analysis Handbook Summary Report For Regulators Only © 2009 The National Association of Insurance Commissioners All Rights Reserved

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

Trend and Ratio Analysis by Insurer For Regulators Only © 2009 The National Association of Insurance Commissioners All Rights Reserved

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 © 2009 The National Association of Insurance Commissioners All Rights Reserved

Loss Reserve Projection For Regulators Only © 2009 The National Association of Insurance Commissioners All Rights Reserved

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 © 2009 The National Association of Insurance Commissioners All Rights Reserved

Prioritizations Tools - IRIS (Only public tool) Confidential – Regulator Only © 2009 The National Association of Insurance Commissioners All Rights Reserved

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

Market Share Data

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 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%

Exposure to Portugal, Italy, Ireland, Greece and Spain Bonds Common Stock Preferred Stock Total Portugal 820,986,517 10,128,159 831,114,676 Italy 2,299,649,997 127,709,987 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 20,136,348,742 1,543,257,609 113,159,913 21,792,766,264

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 © 2009 The National Association of Insurance Commissioners All Rights Reserved

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 © 2009 The National Association of Insurance Commissioners All Rights Reserved

Questions Please contact David Vacca at dvacca@naic.org or 816-783-8134 for questions For Regulators Only