Question

Which of the following is not true of the combined ratio? A. It consists of the...

Which of the following is not true of the combined ratio?

A.

It consists of the loss ratio and the expense ratio.
B.

It is a measure of underwriting profitability.
C.

It must always be below 100% for the insurer to show a net profit.
D.

It can be looked at as an insurer's "cost of funds."
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Homework Answers

Answer #1
Option Answer Explanation
A Incorrect The combined ratio is calculated by adding the loss ratio and expense ratio. It is true about combined ratio.
B Incorrect

A ratio below 100 percent indicates that the company is making an underwriting profit, while a ratio above 100 percent means that it is paying out more money in claims that it is receiving from premiums.

It is true about combined rate.
C Incorrect

A ratio below 100 percent indicates that the company is making an underwriting profit, while a ratio above 100 percent means that it is paying out more money in claims that it is receiving from premiums.

It is true about combined rate.
d Correct It is not true about combined ratio

Thus the correct choice is option D.

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