IRIS ratio 12
Hello in the link provided in the wiki for this ratio I think their may be an error. Do you know if there is an errata document for the NAIC ration documents? It says that unusual results for ratio 12 can be due to change in tabular discount; however, we use schedule p part 2 to calculate it and that is gross of all discounting. To me it seems tabular discounting would have no effect in this ratio.
Comments
You are right that Schedule P Part 2 is gross of discounts. However, since income, which goes into change in surplus, may include change in discounted loss reserves, ratio 12 may still be affected by changes in discounting.
If you have 2 companies where everything is the same since the inception of the companies except for the discount rates, then the 2 companies would have different surplus amounts for all years and hence different IRIS 12 ratios. But rationally, the point of interest must be changes in application within the last two years that cause ratio 12 to go out of normal range. In that sense, a change in discounting in the last two years cannot affect ratio 12. Pardon my earlier error.
In the exam, I would try to avoid giving this as a cause, unless the question asks for 4 items. If it does, then you'll have to give this as a fourth, even if it is wrong.