Question

For the past calendar year, a property insurer reported the following financial information for a specific line of insurance: Premiums written $30,000,000 Expenses incurred $6,000,000 Incurred losses and loss-adjustment expenses $11,000,000 Earned premiums $25,000,000 7a. What was the insurer’s loss ratio for this line of coverage? (3 points) 7b. Calculate the expense ratio for this line of coverage. (3 points) 7c. What was the combined ratio for this line of coverage?

Answer 1

a. Insurer’s loss ratio for this line of coverage:

Loss ratio is a method in which actual loss ratio is will be compared with expected loss ratio and the rate will be adjusted.

Loss ratio = Incurred losses + loss adjusted expense / Premium earned

Incurred losses and loss-adjustment expenses = $11,000,000

Earned premiums =$25,000,000

=$11,000,000 / $25,000,000 = 0.44

Loss ratio = 0.44

b) Expense ratio:

Underwriting expenses = $6,000,000

Premium written = $30,000,000

= Underwriting expense / premium written

=$6,000,000 / $30,000,000 = 0.20

Expense ratio= 0.20

c) Combined ratio:

Loss ratio = 0.44

Expense ratio = 0.2

Formula for combined ratio = Loss ratio + expense ratio

=0.44+0.2 = 0.64

Combined ratio for the line of coverage =0.64