You were just hired by the Risk Manager of a large company as an Insurance Analyst. The Risk Manager gave you an assignment. The company is considering changing insurers for several coverages. There are a number of insurers willing to write the coverages. The Risk Manager has asked you to answer some questions about one insurer. Specifically, you are to do the following:

Obtain a copy of your companys exhibit from the Bests Insurance Reports web site. The Best books are bulky and present limited data. Best offered a CD-ROM, and several years ago, switched to a web site that they frequently update. WSU subscribes to the A.M. Best data base, available through the WSU library. Given limited library access due to COVID, your professor has completed this step for you. He will forward to you the exhibit of the company you are to analyze.

Answer the following questions about your company. Write your answers on separate paper, or save this Word document and write your answers on it. The answer format is short answer, but some answers require an explanation or a computation. An explanation is not a sentence or a sentence fragment. Your answers may be hand-written, but must be legible. Do not retype the questions.

You have over three weeks to complete the projectits due AT THE START OF CLASS on Thursday, October 1^st. Early submissions are welcome, late submissions incur a one letter grade (10%) penalty. Projects not submitted by noon on Tuesday, October 6^th will received no credit. You only have to submit your answers you do not have to submit the company exhibit.

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A.M. Best has been analyzing insurers since the early 1900s. Ratings assigned by A.M. Best (similar to Moodys and S&P ratings for bonds) are important to risk managers, as the risk management policy statement may include a rule that coverages can only be placed with safe insurers (e.g. an A- or higher-rated insurer). A Best Rating is a composite measure, considering such things as asset quality, management, adequate loss reserve estimates, leverage, loss history, profitability, use of reinsurance, etc.

To conserve space, Best's usually quotes dollar values in thousands (000). For answers requiring dollar values, be sure to provide the ACTUAL DOLLAR VALUE add the three zeroes back where needed. Also use values for the latest COMPLETE CALENDAR YEARDO NOT USE INTERIM (partial year, e.g. 3/31 or 6/30) NUMBERS. Youll be using year-end 2019 values.

Most, if not all, of the information needed to answer the questions can be found in your companys exhibit. Your instructor will answer general questions about the project in class. If you are having problems finding answers to specific questions, consult your instructor. This project is to be completed individually. Copied answers (explanations) are easily detected. The copier and the person copied will both receive a zero if answers to explanation questions are identical or nearly identical.

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The Risk Manager has asked the following questions about the company you selected:

1. How can the Risk Manager get in touch with the insurers home office? List the mailing address, phone number, and web page (if any).

2. What Financial Strength Rating did A.M. Best assign to your company or group of companies? (e.g. A+, A-, B+ -- half-point)

3. Is the majority of direct premiums written by your company personal lines insurance (e.g. homeowners, private passenger auto, etc.) or commercial lines insurance (e.g. workers compensation, commercial multi-peril, liability occurrence, etc.)? (you must justify your answer)

4 a. What is the dollar value of your company's or the affiliated companies total assets? (half-point)

b. What are the two largest categories of assets, and what percentage of total assets does each category represent? (e.g. Bonds, $75.0 million, 75% of total assets; and Common Stock, $10.0 million, 10% of total assets) (note premium balances is an asset)

5. Which two lines of insurance (e.g. Workers' Compensation on and General Liability, or Homeowners and Private Passenger Auto, etc.) accounted for the greatest share of direct premiums written in the most recent year in the exhibit? Include dollar values and percentages for each of these two lines (e.g. Workers Compensation, $350,000, which was 35% of direct premiums written, and General Liability, $320,000, which was 32% of direct premiums written).

6. What is the ownership structure of your company or group of companies? Is your company a stand-alone mutual, a stock company, a group of companies that are affiliated/pooled, etc.?

7. Which two lines of insurance (e.g. workers compensation, homeowners, private passenger auto, commercial multi-peril, etc.) produced the highest net loss ratio in the most recent year depicted, and what was the loss ratio for each of these lines?

8. Calculate your company's "return on assets" by calculating this ratio:

Net Income (after taxes)

----------------------------------------- = Return on Assets (1 pt., show your work, your

Total Assets answer may be negative)

9. From which two states did your company derive the most direct premiums written (DPW) and how much premium income was received from each of these states? (e.g. Florida $23,000,000 and Georgia $18,000,000)

10 a. What were your insurers total direct premiums written and net premiums earned in the most recent year depicted in your exhibit?

b. Explain the difference between direct premiums written and net premiums earned.

11. Calculate your company's surplus and capital ratio (as specified below) AND explain the significance of your companys ratio:

Total Assets - Total Liabilities

------------------------------------------------- = Surplus and Capital Ratio

Total Assets

(one point for the calculation (you must show your work), and one point for your explanation of the significance (Why is this ratio important? What does this ratio measure?))

12 a. The amount of new business an insurer can write is limited by the insurers surplus position (total assets total liabilities). What was your insurers ratio of net premiums written (NPW) to policyholders surplus (PHS) in the last full year depicted in the exhibit? (1 point, calculate your value and show your work -- FYI this ratio measures underwriting leverage)

b. Recently, the industry average NPW/Surplus ratio was 1.20, meaning $1.20 of NPW per $1.00 of surplus. Discuss your companys ratio (from Part a) in relation to this recent industry average. Dont simply restate your companys ratio--interpret your companys ratio vs. the average explaining whether your companys ratio indicates a higher or lower level of operating risk.

13. What are your companys two largest liability accounts? Name them.

14. What was your company's federal income tax liability (incurred or paid/recovered), if any, in the most recent year in the exhibit?

15. What was your company's combined ratio (loss ratio plus expense ratio) in the most recent year in the exhibit? (half-point) Does your companys combined ratio indicate that the company made money or lost money on underwriting activities in the most recent year shown in the exhibit? (half-point) Discuss whether your companys underwriting profitability has been improving or declining in recent years as indicated by the combined ratio over the past few years.

16. What was the dollar value of your companys net losses and LAE (losses and loss adjustment expenses) incurred and your companys underwriting expenses incurred? Provide the Income Statement values. (1 point)

17. In competitive insurance markets, it is essential for insurers to hold the line on expenses. What was your insurers expense and policyowner dividend ratio for the last full-year depicted in your exhibit? (half-point). Discuss the trend of your insurers expense ratio of the last three or four years. (1 point)

18. Who is the leading officer of the company? (Name of CEO, President, or both) (half-point, if not in the exhibit, you can easily find the answer on-line)

19. According to the Income Statements, what were your companys net underwriting income and net investment income in the most recent year? (half-point each, note -- net underwriting income could be a negative value)

20. What is the Years Average Maturity of the bonds in your insurers portfolio? Report the average for all bonds (the Total) held (govt, govt agency, muni, and industrial). (half-point). Explain why property and liability insurance companies typically hold shorter average duration bond portfolios than life insurance companies. (1 point)