2017 Spring 13b
Hi,
This question asks to analyze the financial health of the company.
In the examiner's report, the model answer says that "the company has a healthy investment yield despite the current low interest rate environment. It may be worth paying closer attention to the company's investment portfolio to better understand its asset classes."
First of all, am I to use actual real-life information (here, the interest rate being really low) when answering questions? I thought the information given were hypothetical so I didn't think to mention interest rates, unless I'm missing something from the given data?
Second, I would like to know how I can determine that company has a healthy investment yield. Is it healthy if it's higher than the interest rates?
Thank you,
Comments
You're right that the answer seems to use information from real-life versus the syllabus.
Note that investment yield is actually not an MSA ratio. There is an MSA ratio called adjusted investment yield but the "plain-old" investment yield is from the CCIR Annual Statement Instructions:
The Annual Statement instructions do not provide guidance on what a good/bad investment yield would be. Even the MSA ratio "adjusted investment yield" does not have a specific acceptable range.
I don't think this was a fair question. The only thing I can say is that since they grouped investment yield with the traditional MSA ratio question, and you always have to comment on the acceptable range for the MSA ratios, it might be a good idea to say something about the investment yield as well. I think an alternate acceptable answer would be to say that there is no specific acceptable range for investment yield as it depends on the individual investments. (If the company had fantastic underwriting results and didn't need to rely on risky investment income, then a much lower investment yield would still be consistent with financial health.)