Orco Insurance markets malpractice insurance. The company's combined ratio in 2018 was 119.8 percent. Its expense...

Orco Insurance markets malpractice insurance. The company's combined ratio in 2018 was 119.8 percent. Its expense ratio in the same year was 37.6 percent. What was the company's loss ratio (in percent)?

Expert Solution

Answer :

Combined Ratio is the profitability measure tool used by the Insurance Companies to know how efficiently it is performing in Insurance measure.

So, this ratio give a bird' s eye view by stating how much Money in the form of Expenses, Losses , Claims , dividend etc. is flowing out as compored to the Inflows in the form of premium .

Combined Ratio is calculated in the Terms of % to the Premium Earned during the Period

Combined Ratio = Incurred Losses + Expenses / Earned Premium

Combined Ratio = Incurred Losses / Earned Premium + Expenses / Earned Premium

Combined Ratio = Losses Ratio + Expenses Ratio

119.8% = Losses Ratio + 37.6%

Losses Ratio = 82.2%

If the Combined Ratio is more than 100% , it indicates that the Cash Outflow in the Form of Expenses , Losses is more than the Inflow in the form of Premium earned .

Combined Ratio more than less than 100% , indicated Insurance Company has made an Profit.

Note : Combined Ratio does not include the Investment Ratio so, Basically this ratio focuses on Operating Business of the Insurance Company.

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