Financial Data
Enter the essential financial figures below. Expand the additional sections for a comprehensive analysis.
Financial Ratio Analysis Guide for European Auditors — free PDF
ISA 520 & ISA 570 practical workbook: all formulas with visual explanations, industry benchmark reference tables from BACH for 15 industries, ratio interpretation guide, and template narrative paragraphs for audit working papers.
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ISA 520.5 — Design and perform analytical procedures near the end of the audit that assist in forming an overall conclusion.
ISA 520.A1 — Analytical procedures may include ratios such as gross margin percentages and ratio of sales to accounts receivable.
ISA 570.A3 — Negative working capital, adverse key financial ratios, operating losses, and other indicators may cast doubt on going concern.
Financial Ratio Analysis for Insurance
Insurance company financial ratio analysis requires a specialised approach that accounts for the unique economics of underwriting and investment income. Traditional ratios like gross margin have limited meaning because the primary 'cost' — claims payments and reserve movements — is estimated rather than observed. The combined ratio (loss ratio + expense ratio), loss ratio, and Solvency II capital coverage ratio are the primary analytical metrics for insurance entities.
The Altman Z-Score is not applicable to insurance companies. Like banks, insurers operate with naturally high leverage and unique asset-liability structures that render the Z-Score meaningless. IFRS 17 (effective from 2023) has fundamentally changed how insurance contract revenue and liabilities are recognised, making pre-2023 ratio benchmarks less comparable. The contractual service margin (CSM) and risk adjustment components introduce new layers of estimation into the financial statements.
European insurance benchmarks from BACH show median ROE of 10.0% and median net margin of 8.0%. However, insurance profitability is highly cyclical — soft market conditions compress underwriting margins, while catastrophe events can cause sudden losses. When performing analytical procedures under ISA 520, auditors should compare loss ratios across accident years (not just calendar year), assess IBNR reserve adequacy trends, and analyse investment portfolio composition shifts that may indicate reaching for yield to offset underwriting losses.
Regulatory Context
Solvency II capital requirements. IFRS 17 insurance contract recognition. EIOPA supervisory expectations. Claims reserve adequacy and actuarial opinions. Reinsurance credit risk assessment.
Industry-Specific Going Concern Indicators (ISA 570)
Solvency II coverage ratio declining toward 100%
Combined ratio consistently exceeding 105%
Claims reserves being repeatedly strengthened (prior year development)
Loss of reinsurance capacity or reinsurance counterparty default
Significant catastrophe exposure relative to available capital
Regulatory enforcement action or recovery plan requirement
Worked Example: European General Insurer
NordStar Verzekeringen NV — general insurer with €180M gross written premiums
Key results: Current Ratio: 1.27, ROE: 8.8%, ROA: 1.8%, D/E: 4.00, Interest Coverage: 2.75x, Net Margin: 8.3%, Altman Z-Score: NOT APPLICABLE