IRIS 6 Investment Ratio

Why does the denominator have a "-G"?
Here is my thought:
A is Cash & Invested Assets at the beginning of the year;
B is Cash & Invested Assets at the end of the year; G is Investment Income Earned.
Assume C to F are all Zeros.
The denominator Average Cash & Invested Assets = 1/2 A + 1/2 (B - G), since we need to exclude the investment income from the year-end Cash & invested assets to calculate the investment yield.
Am I understanding this formula correctly?
Thank you for your answer!

Comments

  • Actually, I think 1/2 (Investment Income Due & Accrued - Investment Income) may make more sense.

  • The text does not offer an explanation for this. I think it's an attempt to exclude G from the base of the yield. The earned of current is a portion of the due & accrued of current + prior, so it may be taking G out of C+D for this purpose.

  • Can someone give a more detailed explanation of this formula? (especially the purpose of Investment Income Due and Accrued)

    I hate to just memorize something without understanding it.

  • I gather Investment Income Due and Accrued makes up a portion of invested assets and therefore needs to be included in the base of the yield.

    In the wiki, we did not offer explanations that are more detailed than what is in the text, because that often requires getting deeper into the discipline represented by a ratio, such as Investing in this case. This is not required of candidates.

  • I would like to ask another question for IRIS 6. Why borrowed money should be deducted from the denominator? If the insurer is able to borrow money with super low interest, it can borrow money to do investment (i.e. using leverage). Removing the borrowed money will overestimate the investment yield unless the cost of borrowing money is also excluded from the investment income.

  • As per my previous comment, the reason for this is out of the scope of 6U.

    It seems reasonable that if they exclude borrowed money from the denom, they should exclude the returns on it from the num.

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