Assured Guaranty View on Calculating Statutory Expense and Combined Ratios in the Financial Guaranty Industry

June 27, 2018

A financial guarantor’s premiums are generally collected up front but earned over long periods of time. As a result, Assured Guaranty calculates its expense and combined ratios in a different manner than it believes is typically used for life or property/casualty insurance companies - by substituting earned premiums for written premiums in the denominator of the expense ratio. 

Assured Guaranty calculates its ratios based on line items on the Statement of Income (page 4) of a financial guarantor’s Statutory Annual Statement as follows:

Financial Guaranty Expense Ratio = Other Underwriting Expenses Incurred [Line 4] ÷ Premiums Earned [Line 1]

Financial Guaranty Loss Ratio = (Losses Incurred [Line 2] + Loss Adjustment Expenses Incurred [Line 3]) ÷ Premiums Earned [Line 1]

Financial Guaranty Combined Ratio = Financial Guaranty Expense Ratio + Financial Guaranty Loss Ratio

Note that the Expense Ratio (Other Underwriting Expenses to Net Premiums Written) reported on Line 71 of the Five-Year Historical Data section of the Statutory Annual Statements of Assured Guaranty’s U.S. insurance companies not only uses written rather than earned premiums in the denominator but also, in the numerator, includes Aggregate Write-Ins for Underwriting Deductions [Line 5] and deducts Total Other Income [Line 15]. Given the nature of the items included in Lines 5 and 15, Assured Guaranty does not believe it is appropriate to include these lines in the expense or combined ratio calculations.  All page and line references above are based on the 2017 Annual Statement format.